Despite rising interest rates, consumers increased their spending in July
But what they're spending their money on is shifting.
On Wednesday, when the government revised some of its economic data for the second quarter, we learned that consumers spent even more than originally thought.
And on Thursday, we learned that they kept spending in July, as noted in the Bureau of Economic Analysis report, Personal Income and Outlays.
The report is watched closely, because it includes the Fed’s preferred measure of inflation, the PCE price index. It was up .2%.
But those outlays in the report’s title? Turns out that in July, consumers spent more on both services and goods, despite the Fed’s best efforts to get us to cool it.
If spending earlier in the year was about getting ready for a summer of “revenge travel,” Jay Zagorsky at Boston University’s Questrom School of Business said that now, “we’re starting to get back to more normal times where you’ve done your travel, and it’s now time to sort of hunker down a little bit more at home.”
That gave people one reason to spend .9% more on goods in July than in June. That’s also despite higher interest rates jacking up credit card bills and those student loan repayments about to kick back in for many.
“The U.S. consumer is not giving in, is continuing to spend,” said Erik Lundh, principal economist at the Conference Board. “But I think we have to ask ourselves, you know, ‘How long can this can this run for?’“
The answer is quite a while, according to an upcoming report from Near Intelligence, which tracks consumer behavior.
“More Americans are saying that they’re planning to spend more for the rest of the year, including holidays,” said Kristina Tipton, the company’s director of market research. “43% said that they’re planning to spend more for the remainder of the year, compared to 39% spending about the same and 18% spending less.”
So, on balance, people seem to not be that worried about splurging a bit — at least until the bills start coming due.
“Whether or not people will shift their spending has more to do with the realities of getting those bills,” said Stephanie Tully, who teaches consumer behavior at USC’s Marshall School of Business. “But people aren’t great about anticipating that in advance. And so until those bills come, it’s unlikely that it is going to change spending in advance.”
But for now, it’s still hot spend summer.