US Consumer Spending Rises 0.5% July Amid Elevated Inflation

U.S. consumer spending rose 0.5% in July, marking the strongest increase in four months, driven by spending on motor vehicles, recreational goods, clothing, and food and beverages, despite declines in gasoline and energy outlays. Inflation remained elevated, with the Federal Reserve's preferred Personal Consumption Expenditures (PCE) price index rising 0.2% monthly and holding at 2.6% annually, while core PCE edged up to 2.9%, reflecting persistent price pressures particularly in services. The ongoing impact of President Donald Trump's tariffs on imports has contributed to higher costs for businesses, although these have been partially absorbed or delayed due to pre-tariff inventories. Labor market conditions have softened, with average monthly employment gains slowing substantially and consumer sentiment about job availability worsening, supporting expectations that the Federal Reserve will likely cut interest rates by 25 basis points in its upcoming September policy meeting. Despite inflation concerns, solid wage growth and low layoffs are sustaining consumer spending, which accounts for more than two-thirds of U.S. economic activity. Overall, the data suggest resilient domestic demand amid inflationary pressures and cautious monetary policy adjustments.