American consumers took a bit of a breather in July after a strong spring, while incomes rose more than expected and households put a larger share of their earnings into savings.
Personal-consumption expenditures increased 0.2 percent from the previous month, the Commerce Department said Wednesday. That was down from a 0.3 percent increase in June, although stronger than the 0.1 percent gain economists had forecast.
After adjusting for inflation, spending was essentially unchanged in July, following a 0.4 percent increase in June. The result marked a soft start to the third quarter but followed robust consumption growth during the spring. A separate Commerce Department report Wednesday revised second-quarter consumer-spending growth up to a 3.4 percent annual rate from the previously reported 3.2 percent.
The July slowdown was concentrated in goods. Inflation-adjusted goods spending fell 0.6 percent, including a 1.4 percent decline in durable goods such as automobiles, furniture and recreational equipment. Real spending on nondurable goods declined 0.2 percent.
Services spending continued to grow, rising 0.3 percent after adjusting for inflation.
In current-dollar terms, spending on services increased by $86.2 billion at a seasonally adjusted annual rate. The largest increases came in financial services and insurance, healthcare, and housing and utilities.
Spending on goods fell by $49.9 billion. Purchases of gasoline and other energy goods declined by $14 billion, while spending on recreational goods and vehicles fell by $13.6 billion. Motor-vehicle spending declined by $9.4 billion.
The slowdown may partly reflect unusual timing around summer spending. Amazon held its Prime Day sales event in June rather than July this year, potentially pulling some purchases forward. Some economists have argued that the boost from unusually large tax refunds earlier in the year to fade by midsummer.
Refunds were substantially larger during the 2026 filing season because several tax reductions in President Donald Trump’s One Big Beautiful Bill applied retroactively to 2025. Those payments likely supported consumer spending during the spring and early summer—offsetting the drag from higher gasoline prices—but represented a one-time lift to household finances.
Income growth strengthened as the spending boost faded. Personal income rose 0.4 percent in July, twice the 0.2 percent increase economists had expected and up from a 0.2 percent gain in June.
Disposable personal income, which subtracts personal taxes, rose 0.5 percent. After adjusting for inflation, disposable income increased 0.4 percent, its strongest monthly gain since January.
The increase in income was broad enough to suggest that household finances remained on firm footing. Employee compensation increased by about $46.8 billion at a seasonally adjusted annual rate, including a $39.1 billion rise in wages and salaries. Nearly all of the wage increase came from private-sector workers.
Government social benefits increased by about $30.2 billion, led by Medicare and Medicaid payments. Income from assets rose $19.9 billion, driven primarily by higher dividend income.
Because incomes grew faster than spending, households increased their savings. The personal saving rate rose to 3 percent from a downwardly revised 2.6 percent in June. Personal saving increased to an annual rate of $712 billion from roughly $623 billion.
The improvement provided households with a little more financial breathing room after an extended period in which spending grew faster than income. The saving rate remains well below the 4.5 percent recorded a year earlier and less than half its average level in 2019.
The July figures suggest consumers were becoming more cautious without turning sharply defensive. Real spending has still increased at an annualized rate of roughly 3.3 percent over the past three months. Real disposable income has grown at a 3.7 percent pace over the same period.
Continued spending growth will increasingly depend on income gains, however. Over the past year, real consumer spending has risen 2.1 percent while real disposable income has increased just 0.5 percent. Households have covered much of the difference by saving less or taking on debt.
July moved those trends in a more sustainable direction: income strengthened, spending moderated and saving recovered.
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