Real US Spending Stagnates in July Despite Economic Growth

US economic data revealed that real consumer spending nearly ground to a halt in July 2026, registering growth of less than 0.1% despite the economy's continued expansion, in a sign of consumer caution regarding the rising cost of living.

These data came at a time when the headline PCE inflation index rose to 3.7% year-on-year in July, exceeding expectations of 3.6%, while the core PCE index remained steady at 3.3%, both well above the Federal Reserve's 2% target.

Stagnant consumer spending adds to the complexities facing monetary policymakers at the Federal Reserve, who are striving to balance controlling inflation with avoiding an economic slowdown.

The personal savings rate rose from 2.6% to 3% in July, which is an indicator that the US consumer has become more cautious in spending amid persistent inflationary pressures and high interest rates.

What do these terms mean?

Real Consumer Spending: The value of what consumers spend on goods and services after accounting for the impact of inflation, and it is considered a key measure of economic health.

PCE Index: The Personal Consumption Expenditures index, which is the Federal Reserve's preferred measure for tracking inflation.

Savings Rate: The percentage of income that individuals retain rather than spend, and a rise in it means people are hedging against a more uncertain future.