Consumer Spending Jumps 0.9% in August as Saving Rate Sinks to 4.1%

August spending jumped, but household income did not keep up

In August, American households spent at their fastest pace in months. The money came out of their savings, because their incomes barely rose. The Bureau of Economic Analysis reported that personal consumption expenditures rose $190.8 billion, or 0.9%, in August. Personal income grew only 0.2%, and disposable income grew 0.3%.26 After adjusting for inflation, spending rose 0.6%, or $92.8 billion.26 As a result, the personal saving rate fell to 4.1%.26

The spending gain beat expectations. Forecasters had expected nominal spending to rise about 0.8%. August's increase was a sharp step up from July, which was revised down to 0.1%.27 Coverage of the spending surge broadly agrees on the numbers but differs on how unusual it was. One account calls the 0.9% nominal gain the largest since March.27 Another analysis, citing Bloomberg, says the 0.6% real gain was the biggest monthly increase since March 2025.28 Either way, August was a strong month for consumers.

The rest of the August report is less encouraging. After taxes and inflation, real disposable income did not grow at all.26 Households bought more without earning more in real terms. In practice, that means spending more of each paycheck and saving less of it.

Where the money went

Of the increase, $114.1 billion went to goods and $76.7 billion to services.26 Among goods, the largest gains were in other nondurable goods, gasoline and other energy goods, and motor vehicles and parts. Among services, restaurants and hotels led the increase.28 Health care added $15.1 billion. Recreation services fell by $10.3 billion, the only notable decline.27

The $20.9 billion increase in gasoline and other energy spending needs some caution. Analysts noted that much of it reflects higher prices rather than more fuel actually being bought.28 Higher fuel prices make nominal spending look stronger than it is. That gap between dollars spent and real demand runs through the whole inflation story this fall.

The consumer price index: energy pushes, core holds steady

The Bureau of Labor Statistics' consumer price index showed similar pressure. The CPI rose 0.4% in August, and its 12-month rate held at 3.4%. Both figures were in line with the Dow Jones consensus.1 Not every forecaster expected that result. FactSet's median had called for 3.3% annual inflation, which would have been a third straight decline.7 Morningstar therefore described the reading as above forecasts.8

Gasoline was the main driver. Pump prices rose 3.9% in the month and accounted for more than a third of the CPI's increase. The energy index was up 16.3% from a year earlier.1 Gasoline was 27.4% higher than a year earlier, and fuel oil was up 52%.1 Economists linked the energy shock to the Iran war's effect on oil markets. They also pointed to tariffs and artificial intelligence as other sources of price pressure.2 Diesel reached a record $6 per gallon the day the report came out.2

Measures that strip out energy were steadier, but not clearly better. Core CPI rose 0.3% in the month, a tenth of a point above forecasts.1 On an annual basis, core CPI eased to 2.4%, its lowest reading since March 2021.6 Shelter costs rose 0.3% after two months of 0.1% gains.6

PCE inflation: a cooler reading because the measurement changed

The Federal Reserve's preferred inflation gauge, the PCE price index, rose 0.3% in August and 3.4% from a year earlier. Core PCE rose 0.2% for the month and 3.0% over the year.26 Fox Business reported that all four figures came in below LSEG forecasts. Economists had expected 3.7% headline and 3.3% core annual inflation.30

On this point, the most careful reporting departs from the simple story that inflation is cooling. The bureau's annual update revised July's headline PCE rate from 3.7% to 3.4% and its core rate from 3.3% to 3.0%.30 One detailed analysis traced the change to new methods for pricing investment advice fees, software and legal services, applied back to 2021. RBC economists estimated these changes would cut core inflation by roughly 0.18 percentage points.28 Bill Adams of Fifth Third put it plainly: inflation looked closer to target because of how it is measured, not because the trend had changed.30

That is the right way to read the report. On the revised data, the annual rates did not move between July and August.30 The only real downside surprise is the 0.2% monthly core reading against a 0.3% forecast.28 Inflation did not fall in August. It stayed where it was, at a level well above the Fed's 2% target.

The revisions also created an unusual gap between the two main inflation measures. Core CPI, at 2.4%, is now below core PCE, at 3.0%. Normally the relationship runs the other way.28 Analysts and Fed officials will need to account for that gap when they judge how much inflation is left to tame.

GDP: a strong third quarter with weaker details

The August spending jump fed into a strong third-quarter growth figure. Real GDP grew at a 3.4% annualized rate in the advance estimate, up from 2.2% in the second quarter.11 Forecasts had been about 3.2%, and the Atlanta Fed's GDPNow model's final estimate was 3.3%.16 Consumer spending grew at a 3.8% rate, the same as the prior quarter, and added about 2.52 percentage points to growth.1415

The coverage agrees on the topline but describes the quality of growth differently. Some reports present the quarter as an economy accelerating on consumer demand and AI-related business investment.1720 Real final sales to private domestic purchasers rose 4.9%. Many economists consider that measure the cleanest read on underlying demand.13 EY was more cautious. Its analysis calculated that real final sales rose only 1.7%. It also found that inventories added 1.6 points to the headline figure and that growth was concentrated in a few sectors.12 Government spending also helped, with federal outlays up at a 15.8% rate.15 Part of that federal increase is an accounting effect from smaller sales out of the Strategic Petroleum Reserve.16

The more skeptical reading looks more convincing. Consumers contributed about as much to growth as they did in the spring. The acceleration from 2.2% to 3.4% came mostly from inventories and government spending, not from households.19 Some analysts estimated that growth from consumer and business activity alone was closer to 2%.19 The advance estimate will also be revised on November 25 and December 23. Since 2002, first estimates have moved by about half a point on average by the third estimate.14

The quarterly inflation figure in the GDP report may also give a false sense of relief. The PCE price index rose at just a 2.1% annualized rate in the third quarter, down from 5.0% in the second.13 However, monthly CPI data show gasoline falling sharply in June and July before rising again in August.6 The soft quarterly number largely reflects that temporary dip in energy prices, not a lasting improvement in inflation.

September data show strain

The September data add weight to the cautious view. Nominal spending rose 0.5%, slightly below forecasts. Real spending was flat, and the saving rate fell further to 3.8%.27 Annual PCE inflation rose to 3.6%.21 Annual CPI inflation jumped to 3.7%, above expectations, as gasoline prices rose 34.2% from a year earlier.3 Core CPI also rose to 2.6%.10

The saving rate has fallen steadily. It was 5.6% in January and 6.2% in April 2025, according to one analysis of the monthly income reports.19 Spending paid for by drawing down savings lasts only as long as the savings do. Reuters noted, as cited in one analysis, that an AI-driven stock rally has helped support spending.28 That support mostly helps households that own stocks. EY likewise pointed to spending on services by affluent households and warned that cracks are becoming more visible.12

What the data mean for the Fed

The Fed's benchmark rate has stayed at 3.5%–3.75% all year. Before the September meeting, traders put the odds of a rate hike near 90% after the August CPI report.1 Nationwide's Kathy Bostjancic said Chair Warsh had signaled that rates could stay on hold only if inflation kept slowing, and the August data did not show that.1 TradeStation's David Russell said the August PCE data supported skipping an October hike. He cautioned that the data came before a later rise in diesel prices.28 Navy Federal's Heather Long said the report showed no progress on inflation in August.28

The overall picture is consistent, even if it is uncomfortable. Consumers kept the economy growing in late summer by spending more than their incomes supported. Energy prices are pushing headline inflation higher, and measurement changes have made the decline in inflation look larger than it was. GDP looks strong, but much of the third-quarter acceleration came from inventories and government spending. Until real incomes start growing again, strong spending and a falling saving rate leave consumer demand more fragile than the headline numbers suggest.