US Consumer Spending Falters Amid Stubborn Inflation
US consumer spending has stalled in July, according to analysis from ING Chief International Economist James Knightley. Real personal spending remained unchanged month-on-month, following a soft start to the third quarter. This weakness is attributed to stagnant real incomes and persistent inflation, which continues to put pressure on household finances.
The savings ratio rose to 3 per cent in July, up from 2.6 per cent, as real household disposable income increased by 0.4 per cent. However, this growth in savings is largely due to households tightening their belts rather than experiencing any significant increase in earnings.
Core PCE deflator inflation rose 0.2 per cent month-on-month and 3.3 per cent year-on-year in July, broadly in line with expectations. The Federal Reserve's preferred measure of inflation remains above its target of 2 per cent.
The economic landscape suggests that American households are becoming increasingly divided by income. Real household disposable income has effectively flatlined for more than a year, limiting spending power while inflation erodes purchasing power. Lower- and middle-income households are particularly exposed due to their reliance on income to finance consumption.