Consumer Spending Rose in June, but Prices Did, Too

Analysts have closely watched American consumers for signs that tariff-driven inflation fears will slow the spending that powers the U.S. economy, but there are as yet few signs that pessimism is denting shoppers’ confidence. The Commerce Department said consumer spending rose in July by 0.5% — the most in four months — although economists continue to see inflation-related trouble on the horizon after prices also climbed in July, and at the fastest pace in five months when viewed on a year-over-year basis.

The Personal Consumption Expenditures Price Index, the Federal Reserve’s preferred inflation gauge, rose just 0.2% in July, and the so-called core measure was up 0.3% after food and energy components are stripped out. For the 12-month period through July, however, the core PCE index was up 2.9%, the highest increase since February.

The government said personal income rose 0.4% in July, helping to buoy consumers. “We expect more unwelcome and tariff-induced price inflation to surface in the months ahead,” Scott Anderson, chief U.S. economist at BMO Capital Markets, told Reuters.

The nation’s two main gauges of consumer sentiment declined in August but not by much. The Conference Board said its Consumer Confidence Index declined 1.3 points, to 97.4, from a slightly upwardly revised 98.7 in July. And the University of Michigan said its Consumer Sentiment Index dropped 3.5 points, to 58.2, from 61.7 the previous month.

“Consumer confidence dipped slightly in August but remained at a level similar to those of the past three months,” Stephanie Guichard, senior economist, global indicators, at The Conference Board, stated in a press release. “The present situation and the expectation components both weakened.

“Notably, consumers’ appraisal of current job availability declined for the eighth consecutive month, but stronger views of current business conditions mitigated the retreat in the Present Situation Index,” Guichard added. “Meanwhile, pessimism about future job availability inched up, and optimism about future income faded slightly. However, these were partly offset by stronger expectations for future business conditions.”

The Conference Board said confidence fell for consumers younger than 35 and rose for consumers older than 55. Confidence among income groups was mixed and was weaker for both Democrats and Republicans. Independents’ views were little changed.

“Consumers’ write-in responses showed that references to tariffs increased somewhat and continued to be associated with concerns about higher prices,” Guichard said. “Meanwhile, references to high prices and inflation, including food and groceries, rose again in August. Consumers’ average 12-month inflation expectations picked up after three consecutive months of easing and reached 6.2% in August — up from 5.7% in July but still below the April peak of 7%.”

The think tank said consumers’ views of their family’s current and future financial situation improved in August, but the share of consumers who expect a recession during the next 12 months rose in August to its highest level since April. More people said in August that they plan to buy a car, and purchasing plans for homes were stable. Plans for purchases of big-ticket items were “slightly down overall,” The Conference Board said.

At the University of Michigan, Surveys of Consumers director Joanne Hsu said its index stands 11% above its levels in April and May but is 10% below its position both six and 12 months ago. “[August’s] decrease was visible across groups by age, income and stock wealth,” Hsu stated in a press release. “Moreover, perceptions of many aspects of the economy slipped. Buying conditions for durable goods subsided to their lowest reading in a year, and current personal finances declined 7%, both due to heightened concerns about high prices.

“Expectations for business conditions and labor markets contracted in August, as well,” Hsu added. “That said, expectations for personal finances held steady, albeit at relatively subdued levels relative to a year ago.” Year-ahead inflation expectations rose among survey respondents from 4.5% in July to 4.8% in August.

In August, Hsu said, few consumers spontaneously mentioned recent unsettling events at the federal Bureau of Labor Statistics, where President Donald Trump fired commissioner Erika McEntarfer Aug. 1, and at the Federal Reserve. Consumer interviews for August’s survey closed Aug. 25, the day Trump said he was firing Fed governor Lisa Cook.

The Conference Board said its Leading Economic Index edged 0.1% lower in July, to 98.7, after declining 0.3% in June. The think tank said the index fell 2.7% between January and July, a faster rate of decline than the 1% that occurred in the last six months of 2024.

“The Leading Economic Index for the U.S. decreased just slightly in July,” Justyna Zabinska-La Monica, senior manager, business cycle indicators, at The Conference Board, stated in a press release. “Pessimistic consumer expectations for business conditions and weak new orders continued to weigh down the index. Meanwhile, stock prices remained a key positive support of the LEI. Initial claims for unemployment insurance were much lower in July than in June and were the second-most-positive component of the LEI, after contributing negatively to the index over the previous three months.

“While the LEI’s six-month growth rate remains negative, it improved slightly in July, but not enough to avoid triggering the recession signal again,” she added. “Despite that, The Conference Board does not currently project a recession, though we do expect the economy to weaken in [the second half of] 2025 as the negative impacts from tariffs become more visible. Overall, real GDP is projected to grow by 1.6% year-over-year in 2025, before slowing in 2026 to 1.3%.”

The mood at the nation’s small businesses brightened in July. The National Federation of Independent Business said its Small Business Optimism Index rose 1.7 points, to 100.3, slightly above the 50-year average of 98. In contrast to the Optimism Index, the trade group’s Uncertainty Index increased 8 points, to 97.

“Optimism rose slightly in July, with owners reporting more positive expectations on business conditions and expansion opportunities,” NFIB chief economist Bill Dunkelberg stated in a press release. “While uncertainty is still high, the next six months will hopefully offer business owners more clarity, especially as owners see the results of Congress making the 20% small business deduction permanent and the final shape of trade policy. Meanwhile, labor quality has become the top issue on Main Street again.”

Twenty-one percent of member business owners named labor quality as their main problem, up 5% from the previous month. Taxes, named by 17%, ranked as the second most important difficulty. NFIB said the net percentage of member owners who expect the economy to improve in the coming months rose 14 points, to 36%, seasonally adjusted. The trade group said the reading is “comfortably above the historical average.”

A seasonally adjusted 33% of business owners reported job openings they could not fill, down 3% from the previous month. A net 27% reported raising pay during the month, down 6% from June.

Confidence among the nation’s home builders plateaued in August at what the trade group said is a low level. The National Association of Home Builders said its NAHB/Wells Fargo Housing Market Index dropped 1 point, to 32. The trade group said builder sentiment has now been in what it calls negative territory (an index number below 50) for 16 months.

“Affordability continues to be the top challenge for the housing market, and buyers are waiting for mortgage rates to drop to move forward,” NAHB chairman Buddy Hughes, a home builder and developer from Lexington, N.C., stated in a press release. “Builders are also grappling with supply-side headwinds, including ongoing frustrations with regulatory policies connected to developing land and building homes.” The latest NAHB survey also showed that 37% of builders reported cutting prices in August, down just slightly from 38% the previous month.

“Housing affordability is central to the outlook for economic growth and inflation,” NAHB chief economist Robert Dietz added in a press release. “Given a slowing housing market and other recent economic data, the Fed’s monetary policy committee should return to lowering the federal funds rate, which will reduce financing costs for housing construction and indirectly help mortgage interest rates.”

Results from the HMI’s three component indexes were slightly mixed in August but remained at low levels. The index that gauges current sales conditions fell 1 point, to 35. The component that measures sales expectations in the next six months held steady at 43, and the index that charts the traffic of prospective buyers rose 2 points, to just 22. Any number over 50 indicates that more builders view conditions as good than poor.

Sales of new homes were relatively flat in July. The Commerce Department said sales were down 0.6%, to a seasonally adjusted annual rate of 652,000, from an upwardly revised reading the previous month. The pace of new-home sales is down 8.2% from a year earlier.

“Elevated mortgage rates and ongoing economic uncertainty are weighing heavily on buyer demand,” Hughes, of the NAHB, stated in a press release. “Meanwhile, an elevated inventory of unsold homes, fueled by lagging sales, is prompting concerns over potential cutbacks in new construction.”

Seventeen percent of new homes were priced below $300,000 in July; 31% were priced above $500,000. “Affordability challenges continue to sideline many prospective home buyers,” Jing Fu, NAHB senior director of forecasting and analysis, stated in a press release. “The majority of new homes are now concentrated in the $300,000 to $500,000 price range, reflecting ongoing pressures from elevated interest rates, labor shortages, rising construction costs and inefficient regulatory costs.”

The median new-home price was $403,800 in July, down 5.9% from a year earlier. NAHB said the decline can be primarily attributed to builders’ rising use of sales incentives. In contrast, existing-home sales were modestly higher, climbing 2% in July. The National Association of Realtors said sales rose to a seasonally adjusted annual rate of 4.01 million.

NAR said the median existing-home price in July was $422,400, up 0.2% year-over-year, the 25th consecutive month of increases. “Home buyers are in the best position in more than five years to find the right home and negotiate for a better price,” Yun said. “Current inventory is at its highest since May 2020, during the Covid lockdown.”