U.S. Consumer Spending and Economic Outlook Amid Inflation Concerns

In July 2025, U.S. consumer spending increased by 0.5%, marking the largest rise in four months, according to the Bureau of Economic Analysis. This uptick occurred despite persistent inflation, with the personal-consumption expenditures (PCE) price index rising 2.6% year-over-year and core inflation, excluding food and energy, reaching 2.9%. The increase in spending was primarily driven by durable goods, such as vehicles and appliances, which saw a notable 1.9% rise. However, spending on discretionary services, including dining and travel, declined as consumers faced rising costs.

US consumer spending strong; core inflation warmer on servicesGizmodoFed’s key inflation gauge holds steady, core prices edge higherNewsweekCanada's GDP weaker than expected, Canadian dollar shrugs

The current economic landscape is characterized by high inflation and the looming impact of tariffs imposed during the trade war initiated by former President Donald Trump. These tariffs are expected to exacerbate inflationary pressures in the coming months, as businesses begin to pass on increased costs to consumers. Economists predict that the U.S. may be entering a "stagflation-lite" phase, where slow growth coincides with high inflation. The Federal Reserve is anticipated to cut interest rates in response to these economic conditions, despite ongoing inflation concerns.

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Consumer confidence has been declining, with a recent LendingTree survey revealing that only 38% of non-wealthy Americans believe they will achieve wealth in their lifetime, down from 51% in 2019. The Conference Board's Consumer Confidence Index also fell to 97.5 in August, indicating growing pessimism about the financial future. Many consumers report feeling financially strained due to high prices and interest rates, which has led to a more cautious approach to spending.

NewsweekUS consumer spending strong; core inflation warmer on servicesFed’s key inflation gauge holds steady, core prices edge higherGizmodoCanada's GDP weaker than expected, Canadian dollar shrugs

Critics argue that the current economic policies, particularly the tariffs, are detrimental to consumer confidence and spending power. Matt Schulz, chief consumer finance analyst at LendingTree, noted that high prices and economic uncertainty are discouraging for households, making it difficult for them to focus on wealth-building activities. Additionally, concerns about potential layoffs due to rising operational costs are contributing to a more cautious consumer mindset.

Newsweek

Economists, including Tim Quinlan from Wells Fargo, have indicated that while consumer spending remains robust for now, the long-term outlook is uncertain. They warn that persistent inflation and the effects of tariffs could lead to a significant slowdown in economic growth. The Federal Reserve's upcoming meetings are crucial, as policymakers weigh the need for rate cuts against the backdrop of ongoing inflation.

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• “What People Are Saying Matt Schulz, LendingTree's chief consumer finance analyst, told Newsweek: "Life's really expensive in 2025, and budgets are really tight for so many American households.” — Matt Schulz, Chief Consumer Finance Analyst, LendingTree

Newsweek

• “Consumers are solid for now, and goods inflation remains contained,” — Chris Rupkey, Chief Economist, FwdBonds

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• “The real hit comes in the next six months,” — Heather Long, Chief Economist, Navy Federal Credit Union

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The next consumer confidence report from the Conference Board is scheduled for release on September 30, which will provide further insights into consumer sentiment and economic expectations as the effects of tariffs and inflation continue to unfold.

Newsweek