Now, consumer spending in the United States just surged by 0.6% in August. This increase is a testament to high consumer confidence, despite persistent inflationary headwinds. Stripping out inflation, consumer spending was up 0.4% in real terms. Second, spending has gone up, catching a lot of people off guard. Forecasters had only been forecasting a 0.3% increase in inflation from July, but now expect inflation over the last year to be 2.7%.
Consumer spending is increasing, which is welcome news for the economy. It’s an indication that consumers are still open and willing to spend despite rising costs. Spending quickly bounced back as energy costs increased. This jump in energy prices was the biggest contributor to the month-to-month increase in inflation. Energy costs hit the roof in August, adding to the burden on families’ wallets.
Food prices jumped too, rising 0.5% in August—the largest month-to-month increase since March. Year-over-year, food prices have increased by 2.2%, indicating that staples are becoming more expensive, creating challenges for consumers. Other prices are through the roof at increases not seen in the past half year. Prices hit by tariffs levied by former President Donald Trump are increasing at an even quicker clip.
Though all these costlier elements are adding to an inflationary tide, underlying inflation stayed relatively calm in August when stripping out food and energy expenses. This steadiness may offer some relief to consumers who are experiencing the pinch of rising prices while still managing to maintain their spending levels.
Moving back to the financial markets, the rosy reception given to potentially positive consumer spending news helped drive a positive day in futures trading. Additionally, Dow futures had jumped by 200 points, or 0.44% earlier. At the same time, S&P 500 futures added 0.3%, and Nasdaq 100 futures advanced 0.26%. These increases reflect strong investor sentiment about how the economy will perform with all of the new consumer spending numbers.
As families and businesses adjust to variable pricing across sectors, the national economic picture is still looking cautiously positive. Strong consumer spending amid calm underlying inflation presents a double-edged sword. Economists and policymakers will be following it very closely over the next several months.