- Personal income advanced by 0.2% month-over-month (m/m) in June, slowing from the 0.7% pace seen in the previous month. After adjusting for inflation, taxes, and transfers, real disposable personal income rose 0.3 m/m, matching last month’s pace.
- Consumer spending rose 0.3% m/m in nominal terms. The gain was slightly stronger in real terms, with volumes up 0.4% m/m, as consumers got some reprieve at gas stations last month. Revisions were also positive, with May’s growth revised higher to 0.9% m/m from 0.7% reported previously.
- Looking across the broad categories, spending on goods remained robust for the second consecutive month, advancing by 0.7% in real terms, led by strong spending on motor vehicles and parts (+2.2% m/m), other durable goods (+2.2% m/m), and recreational goods and vehicles (+0.9% m/m). Inflation-adjusted spending on services advanced by 0.3% m/m, with modest gains across most categories. Spending on recreational services was an exception, posting a sizeable gain likely due to the World Cup events (+0.9% m/m).
- With spending outpacing income, the personal saving rate remained under pressure, declining to 2.7% from a downwardly revised 2.8% in May. This marks the lowest saving rate since June 2022.
- Inflationary pressures eased last month. Core PCE—the Fed’s preferred inflation gauge—rose 0.1% m/m, the smallest monthly increase since March 2025. The twelve-month change moderated to 3.3%, from 3.4% last month.
Key Implications
- Consumer spending growth slowed somewhat in June, but the moderation followed two months of strong gains, capping a solid quarter. Looking at the quarterly trend, consumer spending regained momentum in Q2, with real spending growth accelerating to a 3.2% annualized pace from a tepid 0.5% gain in Q1. The pickup was driven largely by stronger goods spending, particularly on durable goods such as cars and furniture, where spending rose by 6.9% annualized, pointing to resilient household demand despite elevated interest rates and higher gas prices.
- While lower gasoline prices provided a boost to households’ purchasing power in June, that support may prove temporary as energy prices have moved higher amid renewed U.S.-Iran tensions. With the boost from higher tax refunds now fading, the sustainability of consumer spending will increasingly depend on continued labor market resilience and support from rising household wealth. Elevated energy prices are also clouding the inflation outlook for the Fed, keeping upside inflation risks alive, with core PCE inflation having run above the Fed’s 2% target for more than five years. While the Fed remained on the sidelines this week, financial markets continue to price a rate hike by year-end.
 in June, slowing from the 0.7% pace seen in the previous month. After adjusting for inflation, taxes, and transfers, real disposable personal income rose 0.3 m/m, matching last month's pace.){kind=link}