U.S. Personal Income & Spending (June 2025)

Consumer spending improves humbly in June, core PCE inflation ticks up modestly

• Consumer spending and income growth both improved in June. Personal income rose 0.3% month-over-month (m/m), a hair above the market consensus forecast for a gain of 0.2% m/m. Growth in wages and salaries eased to 0.1% m/m from 0.3% previously, but transfer payments rebounded from a weak showing in May. 
• Consumer spending grew at 0.3% m/m too, in nominal terms. With income and spending growing at a similar pace, the personal savings rate remained unchanged at 4.5%.
• On an inflation-adjusted basis, spending rose 0.1% m/m, coming on the heels of a 0.2% drop in the month prior. Goods spending grew at 0.1% m/m, as a continued decline in durable goods (owing in part to a pullback in vehicle sales) was offset by a decent gain in non-durable goods that month. Services grew at a similar clip to goods, expanding at 0.1% for the third month in a row. 
• Inflationary pressures recorded a small uptick on a month-to-month basis, with core PCE – the Fed's preferred inflation gauge – rising by 0.3% m/m from the 0.2% pace in the two months prior. In annual terms, core PCE inflation held steady at a pace of 2.8%.

Key Implications

• Yesterday's GDP report showed an improvement in consumer spending in Q2, but the June data shows that the quarter ended on a soft note. Goods spending managed to hold its own despite a continued decline in durable goods, thanks to the offset provided by a decent gain in non-durables. But, in a sign that we're in for a slower period, spending in the much larger and generally more stable category – services – continued to grow at a similarly modest pace of 0.1% for the third month in a row. 
• The Fed's preferred inflation gauge – core PCE – held flat at a slightly higher than expected 2.8% year-on-year in June, while an uptick was visible in the month-over-month and 3-month annualized terms. With inflationary pressures likely to heat-up further in the coming months alongside some easing in the labor market, we anticipate that consumer spending will see some additional easing in the third quarter.