July personal income rose 0.4% and personal spending increased 0.5%, while the core PCE price index climbed 0.2% month-over-month, matching expectations. Those figures indicate aggregate consumer resilience despite tariff uncertainty and weaker job growth. Discretionary services such as food services and hotel accommodations experienced a pullback, reducing the contribution of services to overall spending growth. Year-over-year spending growth decelerated to 2.2% from 3.1% at end-2024. Goods spending remained steady as households appeared to stock up on items ahead of anticipated tariff-driven price increases. The combination of slowing growth in services and rising core inflation points toward increasing stagflationary pressures.
On paper, the July personal income and outlays report on Friday looked solid. Personal income rose 0.4% on a monthly basis, spending increased 0.5%, and the Fed's preferred inflation gauge-the core PCE price index-climbed 0.2% as expected. Taken at face value, it's the picture of a consumer still propping up the economy, despite the cloud of uncertainty from tariffs and weaker jobs growth.
Wells Fargo economists noted that July's spending growth masked a pullback in discretionary categories like food services and hotel accommodations. "We have argued that one largely unnoticed early manifestation of tariff impact on consumer spending is the trend decline in discretionary services categories," the bank wrote. The bank added later that while cutting back on eating out and hotel stays doesn't "signal disaster," it paints a picture of the sorts of decisions households make while under price pressure.
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