U.S. Consumer Spending Regains Momentum in August 

• Personal income advanced by a modest 0.2% month-over-month (m/m) in August, below market expectations for a 0.5% gain. After adjusting for inflation, taxes, and transfers, real disposable personal income growth was flat.
• Consumer spending rose by 0.9% m/m, roughly in line with expectations. Higher prices – especially for gas – accounted for some of the increase, but the gain remained sizeable even after adjusting for inflation, with real spending up 0.6% m/m – the largest monthly gain since March 2025.
• Across the broad categories, real spending on goods rebounded by 1.3% m/m, more than reversing July’s decline. Gains were widespread across good categories, with motor vehicles and parts, furniture and recreational goods, seeing the strongest gains. Spending on gas and energy was the exception, with real sales flat on the month amid higher gas prices.
• Inflation-adjusted spending on services advanced by a modest 0.2%, led by gains in food services and accommodation (+0.8%).
• With spending outpacing income, the personal saving rate fell to 4.1% in August from 4.6% (revised up from 3.0%) in the prior month. The personal saving rate was notably higher throughout 2026 after incorporating the revisions to household income, though it’s still showing a downward trend through 2026.
• Turning to inflation, core PCE—the Fed’s preferred inflation gauge—rose 0.2% m/m in August, slightly faster than the 0.1% m/m gain in the prior month. The twelve-month change on core PCE inflation held steady at 3.0% year-over-year, unchanged from July. Importantly, this morning’s release included a methodology change for how the Bureau of Economic Analysis is estimating price changes on select goods categories, like computer software and accessories. The revised data now shows a slightly lower path for core PCE Inflation, with the three-month annualized currently at 2.0% (versus our prior estimate of 2.7%).

Key Implications

• Consumer spending rebounded in the final stretch of summer, suggesting that July’s sluggish performance was an aberration. Today’s release is consistent with consumption expanding at a solid 3.5% annualized pace this quarter, slightly ahead of our latest forecast. Despite the today’s good news, headwinds remain. Ten-year Treasury yields are up well over 100 basis points since early-March, pressuring lending rates higher, and weighing on the more interest rate sensitive areas of household spending, like home and vehicle sales. On top of this, higher energy prices are also squeezing household budgets. This is likely to lead to some moderation in spending growth as we move into next year.
• The revisions to core PCE inflation paint a slightly better picture on the inflation front, with the three-month annualized (2.0%) currently running a percentage point lower than the year-ago change (3.0%) – pointing to a further cooling in the months ahead. That said, Fed officials have shown less tolerance to look through supply shocks, particularly as the domestic economy is showing signs of strengthening. We still think another rate hike by the end of this year is the most likely outcome, though this week’s employment report will help decide whether they go again in October or wait until December.