Consumer Spending Surges in July Despite Economic Headwinds

consumer spending surges in july despite economic headwinds.jpg Business

American consumers have been defying odds by maintaining their spending habits despite a cooling job market and rising prices. In an unexpected twist, consumer spending saw a significant increase of 0.8% in July, the most notable upsurge since January, according to the Bureau of Economic Analysis. This growth, an acceleration from June’s 0.6%, is keeping the economy afloat for now. However, economists warn that the ongoing squeeze on household budgets due to tougher credit card requirements, rising living costs, and slower wage growth may soon hamper consumers’ ability to spend.

The resilience of consumer spending, which serves as the main engine of U.S. economic growth, is being tested by the Federal Reserve’s ongoing anti-inflation interest rate hikes. Despite these measures, the spending surge has outpaced income growth, with inflation-adjusted after-tax income recording a decrease of 0.2%, the first drop since June 2022. Additionally, wage growth has decelerated as the job market becomes less favorable to workers. Experts predict a possible spending cutback, especially with the resumption of federal student loan repayments in October.

U.S. Consumer Spending Rises Despite Economic Challenges

Despite rising prices and a cooling job market, U.S. consumers have not reduced their spending. Latest data shows that consumer spending, a key driver of the U.S. economy, increased by 0.8% in July 2022, the largest increase since January. However, economists caution that this trend might not be sustainable in the long run due to several factors such as stricter credit card requirements, higher living costs, and slower wage growth.

Uplift in Consumer Spending

U.S. consumer spending saw a growth of 0.8% in July, a significant increase from the 0.6% growth reported in June, according to the Bureau of Economic Analysis. After adjusting for inflation, the growth stands at 0.6%, which is still the fastest since January. The increase in spending comes despite the fact that the "income" side of the household balance sheet did not match the surge in spending. The inflation-adjusted after-tax income actually fell 0.2%, marking the first decrease since June 2022.

Impact of Job Market and Credit Constraints

Wage growth has been slowing down since last year as the job market has become less favorable to workers. Banks have also become more reluctant to lend money following a series of bank failures this spring, leading to restricted credit card use. This could pose a challenge for consumers in financing their purchases in the future.

Inflation and Its Impact

The Personal Consumption Expenditures (PCE) report presented mixed news on inflation. Over the last 12 months, prices have risen by 3.2%, up from a 3% annual increase in June. However, between June and July, prices only rose by 0.2%, a rate that could lead to low yearly inflation if maintained. If PCE inflation continued at the same rate as the last three months, annual inflation would only stand at 2.1%.

Impending Correction in Consumer Spending

Economists warn that the current trend in consumer spending is not sustainable. "American consumers are running down savings and using their credit cards to finance a large proportion of this. With financial stresses becoming more apparent and student loan repayments restarting, a correction is coming,” warns James Knightley, chief international economist at ING.


The rise in consumer spending amidst economic challenges underscores the resilience of U.S. consumers. However, the looming challenges of wage stagnation, tighter credit, and the return of student loan repayments could trigger a shift in the spending trend. The coming months will be critical in determining the sustainability of the current consumer spending levels as these economic pressures mount.

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