July Spending Rose 0.2% as Americans Shifted From Goods to Services

Americans had more income in July, but their inflation-adjusted spending barely increased, according to federal data that suggest households were becoming more selective even as the broader economy continued to grow.

The Bureau of Economic Analysis reported on August 26, 2026, that personal income rose $115.1 billion, or 0.4%, while disposable personal income increased $125.9 billion, or 0.5%. Personal consumption expenditures, however, increased $36.3 billion, or 0.2%.

After adjusting for inflation, real consumer spending increased only $1.3 billion, or less than 0.1%. BEA‘s table shows the monthly change rounded to 0.0%, leaving real spending essentially flat in July.

Income rose faster than spending

The figures do not show that the United States entered a recession. They show that July’s income gains did not translate into equally strong growth in consumer demand.

Personal saving also increased. The saving rate rose to 3.0%, and personal saving totaled $712.0 billion. The higher saving rate could reflect caution, debt management or reduced purchases of discretionary goods. The data do not establish that households were simply more financially comfortable.

For households, the practical picture is mixed: income measures improved, but rising prices limited the purchasing-power effect of those gains. A household’s experience can differ substantially from the national averages, depending on wages, debt, housing costs and the services it uses.

Services gained while goods declined

The composition of spending changed in current-dollar terms. Services spending increased $86.2 billion in July, while goods spending fell $49.9 billion.

These are national aggregate figures, not evidence that every household or business changed behavior in the same way. They do show that the increase in services outlays was partly offset by lower goods outlays, leaving total current-dollar PCE up only modestly.

Retailers that depend heavily on goods purchases may face more selective demand, while service providers could continue to benefit from household spending in areas such as health care, housing-related services, travel and other activities. The BEA release does not identify one cause for the shift.

Inflation still limits the effect of higher income

The PCE price index, the Federal Reserve‘s preferred broad inflation measure, increased 0.2% from June and was up 3.7% from July 2025. Core PCE inflation, which excludes food and energy, also rose 0.2% for the month and 3.3% over the year.

PCE measures are different from the consumer price index. Both July PCE readings remained above the Federal Reserve’s 2% longer-run inflation goal, making it harder for nominal income growth to produce comparable gains in real purchasing power.

The Federal Reserve’s minutes from its July 28–29 meeting, released before the August spending report, said officials held the federal funds target range at 3.5% to 3.75%. Three participants preferred a quarter-point increase, and many participants noted that additional tightening could be needed if inflation remained elevated.

That policy debate remains unsettled and was not a response to the August 26 spending release. Slower consumer demand could eventually reduce price pressure, but persistent inflation could keep borrowing costs elevated for households and smaller businesses.

The broader economy was still growing

The July spending report should be read alongside BEA’s second estimate for the second quarter. Real GDP increased at a 1.5% annual rate from April through June, while real final sales to private domestic purchasers rose 4.2%.

That measure combines consumer spending and gross private fixed investment and can offer a useful view of underlying private-sector demand. The contrast suggests that the economy entered the summer with more momentum than July’s nearly flat real consumer spending alone would indicate.

GDP, income and spending figures can be revised. BEA said its 2026 annual updates to national, industry and regional accounts will begin September 30, alongside the August personal-income and outlays release.

What households and businesses should watch

Households and businesses will be watching whether July’s cautious spending pattern continues. A sustained move away from goods, stronger services demand or a further rise in saving could affect retailers, service providers and the broader growth outlook.

Consumers should also watch whether inflation continues to outpace the growth of their own major expenses. Businesses will be looking at demand, financing costs and whether customers resist further price increases.

The next major update is scheduled for September 30, 2026, when BEA will release August personal-income and spending data and begin its annual updates to the national, industry and regional economic accounts. That report will provide an important early test of whether July was a one-month slowdown or part of a broader loss of consumer momentum.

Sources

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