US consumer spending rises in June, capping strong Q2 as savings fall

Americans spent more in June, closing out a strong second quarter, but drew down savings to fund purchases after a spring surge in inflation.

US consumer spending rose in June, capping a strong second quarter, as households depleted savings to sustain purchases after a spring surge in inflation eroded purchasing power.

The personal saving rate declined sharply in June, reflecting the strain from elevated prices on household balance sheets, according to the report. The Fed's preferred inflation gauge, the personal consumption expenditures price index, pulled back in June, offering some relief after the earlier surge.

The combination of strong spending and dwindling savings poses a challenge for the Federal Reserve. Strong consumption supports economic growth but risks keeping inflation elevated, potentially delaying rate cuts. Markets are watching for the Fed's next policy decision as officials weigh whether price pressures are cooling enough to ease monetary policy.

Consumer spending, which accounts for roughly two-thirds of US economic output, has been a key driver of growth through the first half of the year. The strong second-quarter performance suggests the economy retains momentum even as higher borrowing costs weigh on interest-sensitive sectors.

The decline in the saving rate marks a notable shift from the pandemic era, when households accumulated significant excess savings supported by fiscal transfers. Those reserves have been steadily drawn down as inflation outpaced wage gains, reducing the financial buffer available to many households.

The pullback in the Fed's preferred inflation gauge in June provides some reassurance that price pressures may be moderating. However, policymakers have stressed they need to see sustained progress toward the 2% target before adjusting interest rates. The trajectory of consumer spending in the second half of the year will be critical for the economic outlook, as a further drawdown in savings could slow growth and potentially bring forward the timing of rate cuts.

This article is for informational purposes only and does not constitute investment advice.