US consumer spending increased slightly more than expected in August, increasing by 0.6% after a 0.5% gain in July. This increase in spending keeps the economy on solid footing as the third quarter progresses.
Consumer spending, which drives more than two-thirds of economic activity, has remained strong despite a significant slowdown in job growth.
While the labour market has faced challenges in the past few months, especially with stalled job growth, high-income households are still spending actively.
This is largely due to a strong stock market and elevated home prices, which have increased their wealth. In fact, Federal Reserve data showed that household wealth hit a record $176.3 trillion in the second quarter of 2025.
However, not all households are benefiting equally. Lower-income families are struggling with rising prices, especially on goods impacted by import tariffs. The situation could worsen with upcoming cuts to federal food assistance programs, which will further strain budgets for those already feeling the pinch.
Strong consumer spending contributed to a 3.8% annualized growth in GDP in the second quarter of 2025, marking the fastest pace in nearly two years. For the third quarter, economic growth estimates are now around a 2.5% rate.
In terms of inflation, the Personal Consumption Expenditures (PCE) Price Index rose 0.3% in August, bringing the annual inflation rate to 2.7%. Excluding volatile food and energy prices, core inflation held steady at 2.9%, the same rate as in July. The Federal Reserve uses these numbers to track progress toward its 2% inflation target, and the steady rate could keep the central bank on course for further interest rate cuts.