August 29, 2025

Personal consumption expenditures rose 0.5% in July after climbing 0.4% in June after having been unchanged in May. In the past year nominal spending has risen 4.7%.

What we are really interested in is “real” or inflation-adjusted spending.  That is what goes into the GDP calculation.  After adjusting for inflation real consumption spending rose 0.3% in July after climbing 0.1% in June after having declined 0.2% in May     It turns out that real consumer spending on goods jumped 0.9% in July.  Spending on services rose 0.1%.  In the past year real spending has risen 2.1%.

Personal  income rose 0.4% in July after climbing 0.3% in June after  having declined 0.4% in May.  In the past year personal income has climbed 5.0%.

The growth in income is being fueled by wages which rose 0.6% in July after gaining 0.2% in June after having risen 0.4% in both April and May.  In the past year wages have risen 5.4%.

Real disposable income — what is left after paying taxes and adjusted for inflation — increased 0.2% in July after having been unhanged in June after declining  0.7% in May.    In the past year it has risen by 2.0%.

The savings rate was unchanged in July at 4.4% after having declined 0.1% in June.  Consumers are saving less of their paycheck each month than what they have done historically.  In the 10-years prior to the 2020 recession the savings rate averaged 7.0%.  At 4.4% the savings rate is somewhat below its historical average.  Having said that, the savings rate has been significantly below the historical 7.0% mark for three years.    It appears consumers have used credit card borrowing or some of the newfound gains in their net worth to supplement spending.  We expect consumers to spend at a 1.3% pace throughout 2025.

A year or so ago consumers were rapidly running up their credit card bills.  But the rate of growth in credit card borrowing has slowed to 6.0%.

The consumer debt service ratio has been rising as the result of the additional credit card borrowing, but it is still slightly below where it was prior to the recession.

Thus far the additional debt has not been a problem.  Delinquency rates climbed in the first quarter as student loan payments were once again required after a 3-year grace period and no payment was received on some outstanding loans.

Steady job gains and significant wage growth will provide enough fuel to keep the economy growing at a moderate rate in the months to come.  We look for GDP growth of 2,3% in the second half of the year which would imply 1.9% growth in 2025.

Stephen Slifer

NumberNomics

Charleston, SC