July Personal Consumption Expenditures Overview
The U.S. Department of Commerce released July personal consumption expenditures (PCE) data on August 29, 2025. While overall inflationary pressures continue with core indices showing continued modest increases, consumption remained strong during the month due to promotional sales effects from retailers.
Income Trends
Personal Income: Increased 0.4% month-over-month in nominal terms (previous month: 0.3% increase), matching market forecasts.
Breakdown Details:
- Employee Compensation: 0.6% month-over-month increase (contribution: 0.4 percentage points), accelerating from previous month's 0.1% increase
- Interest and Dividends: 0.1% month-over-month increase
- Transfer Payments: 0.0% month-over-month increase
Per Capita Disposable Income: Increased in both nominal and real terms in July, supporting consumption despite gradual inflation increases.
Personal Consumption Expenditures Detailed Analysis
Overall Growth: Personal consumption expenditures showed strong growth of 0.5% month-over-month in nominal terms and 0.3% in real terms, matching market expectations.
Promotional Sales Impact: July featured promotional sales from major retailers including Amazon Prime Day, which likely contributed to the upward momentum.
Real Terms Breakdown:
- Goods: 0.9% month-over-month increase (contribution: 0.3 percentage points) accounted for most of total expenditure growth
- Automobiles: 4.5% increase (contribution: 0.16 percentage points) - driven by rush demand ahead of Clean Vehicle (CV) purchase incentive termination (moved up to September 30, 2025)
- Information Equipment & Watches: Purchases aligned with sales for back-to-school season items
- Services: Modest 0.1% increase (contribution: 0.0 percentage points)
Price Trends
PCE Deflator:
- Year-over-year: 2.6% increase (previous month: 2.6% increase)
- Month-over-month: 0.2% increase (previous month: 0.3% increase)
- Both figures matched market expectations
Core Index (excluding energy and food):
- Year-over-year: 2.9% increase (previous month: 2.8% increase)
- Month-over-month: 0.3% increase (previous month: 0.3% increase)
Fed Reference Indicators:
- Core index 3-month comparison: 3.0% increase (previous month: 2.6% increase)
- Core index 6-month comparison: 3.0% increase (previous month: 3.1% increase)
Monetary Policy Implications
Price and consumption trends generally aligned with market forecasts, with no major surprises in this data release. Markets are pricing in a 0.25 percentage point rate cut at the next Federal Open Market Committee (FOMC) meeting, but realization depends on the September 5 employment statistics and the following week's price data (PPI and CPI).
Future Risk Factors: While July consumption showed strong growth due to promotional sales effects, recent data suggests continued labor market deceleration. If employment decreases and real wage declines materialize, this robust performance may not continue.