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

Consumer spending improves in August, core PCE inflation holds at elevated level

• Consumer spending and income growth both improved at a solid pace in August. Personal income rose 0.4% month-over-month (m/m), the same as in the month prior. Growth in wages and salaries eased to 03% m/m from 0.5% in July, while government transfer payments rose at the same rate of 0.3% - an improvement from a flat print in the month prior. 
• Consumer spending grew 0.6% m/m in nominal terms, coming on the heels of 0.5% gains in the two months prior. With spending growing at a slightly faster clip than income, the personal savings rate eased to 4.6% in August from an upwardly revised 4.8% in July (previously 4.4%). The personal savings rate was revised higher between 2020 and 2025, with the last two years receiving an upgrade of 0.8 percentage point on average, compared to prior readings. The rate has been trending lower over the last four months.
• Spending was up 0.3% m/m on an inflation-adjusted basis, down from a 0.4% gain in the month prior (previously 0.3%) and a notably upgraded 0.3% gain in June (previously 0.1%). Goods spending remained strong, advancing by 0.7% for the second month in a row. Real spending on durable goods rose by 0.9% m/m, while spending on non-durable goods rose at a slower but still decent clip (+0.5%). Meanwhile, services spending continued to edge up at 0.2% for the third month in a row. 
• Core PCE – the Fed's preferred inflation gauge – rose by 0.2% m/m on the month from a downwardly revised 0.2% in July. In annual terms, core PCE inflation rose to 2.9%, the same as in July, with the measure showing a very mild continued increase since April (2.6%).

Key Implications

• Today's report should be viewed with yesterday's GDP and consumer spending revisions in mind. Consumer spending growth for Q2 was raised to 2.5% annualized from 1.6% previously, reflecting a stronger showing in services spending. Today's report, which shows real spending momentum remained healthy during the June to August period, builds on that positive momentum, leading to a notable upgrade in our tracking for consumer spending in the third quarter – now at around 3%, from 2% previously (see Forecast). Coupled with upward revisions to personal income and the savings rate, and a more recent pullback in initial jobless claims, the data suggests that the U.S. consumer is in somewhat better shape than previously thought. 
• The Fed's preferred inflation gauge remains above the Fed's comfort zone and has recorded a mild acceleration recently. With businesses likely to increasingly pass on tariff-related costs to consumers, the risk remains for inflation to increase further over the near-term. Overall, an improved growth trend and persistent inflation lean in favor of the Fed potentially having to do a little less in the way of rate cuts to support the economy. This may put some doubt on the interest rate path, though it does not derail the case for two more rate cuts by the end of this year.