Rebound in Durable Goods lifts consumer spending

Summary

Real consumer spending rose 0.3% in July and is now up 2.0% over the past year. A big pick-up in wages and salaries is helping households keep their head above water for now even as prices still rise. The composition of spending still carries some mild signs of tough choices for households.

Rebound in goods spending thanks largely to autos

Real consumer spending rose 0.3% in July to notch its best month since the pre-tariff surge in March. The intervening months had been soft owing to an air pocket in spending on durable goods. Spending on these big-ticket items was flattish in April before posting back-to-back declines in May and June, raising concerns about the tariff impact on durable goods spending. Those worries may fade a bit after today's report showed durable goods spending rebounded in July rising 1.9% in the month. That's the best monthly pick-up since the pre-tariff surge of 3.9% in March.

Most of the spending increase in July was attributable to spending on motor vehicles and parts where spending has been whipsawed amid tariff pricing concerns. Beyond autos, durable goods spending was more modest. Non-durable goods categories such as food, beverage and other non-durable goods generally outpaced durables categories.

We have argued that one largely unnoticed early manifestation of tariff impact on consumer spending is the trend decline in discretionary services categories. That remained intact here in July despite an otherwise solid report on consumer spending. Recreation services spending posted the smallest increase of any services category, and spending on food services and hotel accommodations were in decline in July.

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