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US consumers kept spending in July, even as inflation remained elevated that month, new data showed Friday.
Consumer spending rose 0.5% from June, according to Commerce Department data released Friday. That’s slightly below expectations for a 0.6% bump but represented a slight pickup from the 0.4% increase notched in June, according to FactSet consensus estimates.
July is typically a month filled with summer sales events, notably Amazon’s Prime Day, as well as a key month for back-to-school spending. However, spending on cars and financial services (bolstered by the strong stock market performance) drove the lion’s share of last month’s spending gains, Friday’s report showed.
When factoring in inflation, spending rose 0.3% last month, an acceleration from a tepid 0.1% gain in June.
“Consumer spending is solid, and goods inflation remains moderate for now as the tariff war has yet to slow the economy appreciably or lead to a worrisome outbreak of inflation that could worry markets,” Chris Rupkey, FwdBonds chief economist, wrote Friday in a note to investors.
The Personal Consumption Expenditures price index — the inflation gauge the Federal Reserve uses for its 2% target rate — rose 0.2% on a monthly basis, which kept the annual rate at 2.6%.
The core PCE price index, which excludes the volatile food and energy categories and is considered a better indicator of underlying inflation trends, rose 0.3% from June (matching the pace seen the prior month) and saw its annual rate accelerate to 2.9% from 2.8%.
Stocks were lower Friday morning but pared some losses after the data release. Dow futures were down 100 points, or 0.21%. S&P 500 futures fell 0.23% and Nasdaq 100 futures slid 0.44%.
The July inflation data was right in line with what economists had expected.
Solid income growth helped to provide fuel for resilient US consumers, whose spending powers more than two-thirds of America’s economic activity.
Personal income rose by 0.4% last month (marking an acceleration from 0.3% in June), a reflection of higher wage gains, the report showed. The savings rate held steady at 4.4% last month.
While both spending and income rebounded last month, July also marked the first month since March when monthly spending exceeded income, noted Heather Long, chief economist at Navy Federal Credit Union.
“This is an encouraging sign that American consumers are still willing to open their wallets when they see deals,” she wrote.
This story is developing and will be updated.