U.S. Economic Update: Spending Rises, Inflation Holds, Labor Market Mixed
A flurry of U.S. economic reports released Thursday paint a mixed picture: inflation remains in check, consumer spending continues to rise, and labor market signals remain uneven. While PCE inflation came in right on target, the persistent weakness in continuing jobless claims could influence upcoming Fed decisions.
💳 Personal Consumption Expenditures (PCE)
The PCE price index — the Federal Reserve’s preferred inflation gauge — rose 0.3% in June, both overall and excluding food and energy. On an annual basis, core PCE held steady at 2.8%, while headline PCE increased 2.6%, marking slight progress toward the Fed’s 2% inflation target.
Meanwhile, consumer spending rose 0.3% in June, driven by a $40.1 billion increase in services and $29.9 billion increase in goods. Real spending (inflation-adjusted) edged up just 0.1%, indicating most of the growth came from higher prices rather than volumes.
💼 Personal Income & Savings
Personal income rose 0.3% in June, supported by increases in government benefits and employee compensation. Disposable personal income (DPI) also grew by 0.3%, but real DPI (adjusted for inflation) was unchanged.
The personal saving rate held steady at 4.5%, suggesting consumers continue to dip into savings to maintain spending amid elevated prices.
📉 Jobless Claims & Labor Market Signals
Initial jobless claims rose slightly to 218,000 in the week ending July 26, below the 225,000 forecast and only 1,000 higher than the previous week. However, continuing claims remain elevated at 1.946 million, marking ten consecutive weeks above 1.9 million — a red flag for labor market strength.
Fed officials like Christopher Waller have cited these persistent continuing claims as justification for cutting rates sooner, suggesting the labor market is cooling more than headline figures suggest.
💲 Employment Costs Hold Steady
The Q2 Employment Cost Index rose 0.9% from the first quarter, slightly above expectations. Year-over-year, total compensation costs increased 3.6%, the same pace as Q1, indicating stable wage inflation.
Wages and salaries rose 1.0% from Q1 and 3.6% year-over-year. Benefit costs rose 0.7% from Q1 and 3.5% over the past year. These trends support the Fed’s current view that wage growth is not a primary driver of inflation at this stage.
🔍 Key Takeaways:
- Inflation: Core PCE stuck at 2.8% — still above target but stable.
- Spending: Consumers still spending, especially on services.
- Jobs: Initial claims low, but continuing claims remain stubbornly high.
- Wages: Employment costs are stable — not signaling wage-driven inflation.
