US consumer spending rose 0.5% in July despite elevated inflation, boosted by Prime Day, back-to-school shopping, and strong wage growth.
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Americans Kept Spending Last Month Despite Elevated Inflation
Introduction
Even with elevated inflation, Americans continued spending in July 2025, driven by Prime Day discounts, back-to-school shopping, and strong wage growth. According to the Commerce Department’s latest report, consumer spending rose 0.5% compared to June, slightly below expectations but still showing resilience in the US economy.
In this blog, we’ll break down the latest spending trends, the impact of inflation, and what it means for the future of the economy.
US Consumer Spending in July 2025: Key Highlights
- Spending Growth: Up 0.5% from June
- Inflation Impact: PCE price index rose 0.2%
- Core PCE Inflation: Increased to 2.9% annually
- Income Growth: Personal income up 0.4%
- Savings Rate: Stable at 4.4%
- Stock Market Reaction: Dow, S&P 500, and Nasdaq dipped slightly
Why Americans Are Still Spending Despite Inflation
Despite the rising cost of living, Americans continue to spend aggressively, supported by:
1. Seasonal Discounts and Prime Day Sales
Amazon’s Prime Day and other competitive summer sales fueled a surge in online shopping. Back-to-school spending added further momentum.
2. Strong Wage Growth
The Commerce Department reported a 0.4% increase in personal income, helping consumers manage rising prices and sustain higher spending levels.
3. Optimism Around Stock Market Performance
With markets performing strongly in July, consumers felt more confident about their financial stability, boosting spending on financial services and luxury products.
Inflation Pressure: PCE Index & Core PCE Insights
The Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred measure of inflation, rose 0.2% in July, keeping the annual rate at 2.6%.
The Core PCE index, which excludes food and energy, rose 0.3% from June and accelerated to 2.9% year-over-year.
Economists note that while inflation is above the Fed’s 2% target, consumer spending hasn’t slowed significantly — showing that households are absorbing higher prices.
Stock Market Reaction to July Spending Report
Following the release of the spending data, the US stock market saw modest declines:
- Dow Jones: ↓ 0.21%
- S&P 500: ↓ 0.23%
- Nasdaq 100: ↓ 0.44%
However, experts suggest this reaction is temporary since strong consumer spending signals economic resilience, which supports long-term market stability.
Expert Opinions on US Consumer Spending
“Consumer spending is solid, and goods inflation remains moderate for now. The tariff war has yet to slow the economy or trigger serious inflation concerns.”
— Chris Rupkey, Chief Economist, FwdBonds
Economists believe that as long as wage growth and employment levels remain stable, consumer confidence will keep driving spending — even in a high-inflation environment.
What This Means for the US Economy
- Positive Impact: Continued spending helps boost GDP growth and supports retail, tech, and service sectors.
- Negative Impact: Persistent inflation may pressure the Fed to keep interest rates higher for longer.
- Risk Factor: If wages fail to keep up with rising prices, consumer spending could slow down later in 2025.
FAQs – US Consumer Spending & Inflation (2025)
Q1. Why did US consumer spending rise in July 2025?
A surge in Prime Day deals, back-to-school shopping, and higher wage growth boosted consumer activity.
Q2. What is the PCE price index and why is it important?
The PCE index measures inflation trends and is the Federal Reserve’s preferred gauge for setting interest rate policies.
Q3. Is inflation under control in the US?
Inflation remains elevated at 2.6%, but consumer resilience and moderate price growth suggest the economy is stable for now.
Q4. How does consumer spending affect the stock market?
Strong spending signals economic strength, which typically supports long-term market growth, even if short-term reactions are negative.