Americans opened their wallets in August. After adjusting for price changes, personal spending climbed 0.6% from July, the biggest one‑month increase since March 2025. At the same time, the broad PCE price index rose 0.3% on the month and 3.4% from a year earlier.
The core PCE gauge, which strips out food and energy, advanced 0.2% month over month, less than projected, and stood 3% higher than a year ago for the third month running. July's core reading was revised lower. Year over year, headline PCE came in below the 3.7% estimate and core PCE below the 3.3% estimate.
Prices increased for both goods and services versus July, with notable moves in gasoline, transportation services, and spending on restaurants and lodging. One key subset of services, excluding energy and housing, climbed 0.4% on the month, the fastest pace since May.
Shoppers put more money toward big‑ticket goods like motor vehicles and furnishings, and also toward discretionary items such as clothing and services including restaurants and hotels. That spending came despite steeper gas prices and broader cost pressures.
Wednesday's release bundled in sweeping annual updates to GDP, spending and inflation back five years, plus changes to how inflation is tallied. The revisions lowered measured inflation in recent months, though it still sits above the Federal Reserve's 2% goal and has done so for more than five years.
Second‑quarter GDP was revised up to a 2.2% seasonally adjusted annual rate from 1.5%, reflecting stronger investment, consumer outlays and government spending. The first quarter's growth was revised upward as well.
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Inflation continues to chip away at paychecks. After taxes, inflation‑adjusted disposable income was flat in August, the weakest monthly reading since April. The personal saving rate slid to 4.1%, the lowest since 2022, even as the revisions showed households have more financial cushion than previously thought.
Fed policymakers are considering when to take another step after delivering a rate increase earlier in the month - their first in three years. Traders trimmed odds of an October hike after the softer‑than‑expected core reading, yet they still expect one additional hike before year end. The S&P 500 began the session in positive territory on the news.
PNC Financial Services Group's chief economist, Gus Faucher, said, "I think at this point the Fed can wait on hold for now," and added, "We are going to see more hikes, but I don't think that the Fed feels that they need to act imminently."
Elsewhere, private‑sector payrolls rose by 90,000 in September - the largest gain in three months, ADP Research reported. The U.S. merchandise‑trade deficit unexpectedly widened in August to its largest since early 2025.
Spending is still humming, but flat real take‑home income and a lower saving rate hint that buffers are thinning.
For everyday investors, the takeaway is simple: solid demand supports consumer‑facing companies, while a cooler core inflation pulse and a patient Fed reduce near‑term rate pressure. That mix can shift quickly, so watch how prices, paychecks and saving trends evolve this fall.
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