Key takeaways
– U.S. consumer spending rose 0.3% in September 2025, driven mainly by higher prices rather than stronger demand, according to the Bureau of Economic Analysis (BEA).
– Services spending increased 0.4% in September 2025, while goods spending remained flat, based on the same BEA report.
– High-income households continued to drive most of the spending growth in September 2025, reinforcing what economists describe as a K-shaped U.S. economy.
– Core PCE inflation remained at 2.8% year-over-year in September 2025, slightly above the Federal Reserve’s 2% target but not showing signs of acceleration.
– Inflation-adjusted real consumer spending was unchanged in September 2025, creating a weak entry into the fourth quarter.
– Financial markets forecast an 87% probability of a 25-basis-point rate cut by the Federal Reserve next week, according to CME FedWatch data.
– The PCE and spending report for September 2025 was released today, but the initial estimate for U.S. Q3 GDP remains delayed until December 23, 2025, due to the prior 43-day government shutdown.
Consumer Spending Rose 0.3%, Driven Mostly by Higher Prices
U.S. consumer spending increased 0.3% in September, according to a Bureau of Economic Analysis report released after a 43-day government shutdown. The gain was powered largely by higher prices, especially for gasoline and other energy goods.
Goods spending was unchanged, with declines in motor vehicles, recreational goods, clothing and footwear. In contrast, services spending rose 0.4%, supported by housing and utilities, healthcare, financial services, insurance, travel, and transportation.
High-Income Households Continue to Drive Services Growth
Economists say high-income households—boosted by equity market gains—are responsible for much of the increase in services spending, while middle- and lower-income consumers struggle with stagnant wage growth and tariff-driven cost pressures.
Wages rose 0.4%, but the gap in after-tax wage growth between higher- and lower-income households remains wide at 2.6 percentage points, according to Bank of America’s internal data.
Real Spending Is Flat, Setting Up a Weak Start to Q4
After adjusting for inflation, real consumer spending was unchanged in September, signaling a soft handoff into the fourth quarter.
Although consumption likely grew solidly in the third quarter, the BEA’s initial Q3 GDP estimate remains delayed and will be released on December 23.
For now, the Atlanta Federal Reserve estimates GDP increased at a 3.5% annualized rate in Q3, though many economists expect growth to slow in Q4 due to lingering effects from the government shutdown.
Inflation Edges Higher but Core Pressures Remain Steady
The Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s preferred inflation gauge, rose 0.3% in September and 2.8% year-over-year — the highest since April 2024.
Goods prices increased 0.5%, reflecting tariffs on household furnishings, durable equipment, clothing and footwear, along with a 3.6% surge in energy prices.
Service prices rose 0.2%, helping keep underlying inflation contained.
Core PCE, which excludes food and energy, rose 0.2% and is up 2.8% from a year earlier.
Fed Rate Cut Expectations Increase Ahead of Next Week’s Meeting
Markets now place an 87% probability on a 25-basis-point rate cut at next week’s Federal Reserve meeting.
Economists say the combination of softening consumer activity, stable core inflation, and cooling labor-market indicators strengthens the case for easing monetary policy.
An Uneven Economy Heading Into Year-End
Overall, the report points to an economy still expanding but increasingly reliant on higher-income households to sustain spending. As policymakers await the delayed GDP data on December 23, economists say the contours of the recovery remain uneven — and the next round of data will be critical in gauging the economy’s momentum going into 2026.
Source: Reuters
