Wells Fargo Economics, led by Tom Porcelli and colleagues, projects that US consumer spending in July will increase modestly, with nominal personal income rising by 0.3% and spending up by 0.2% [1]. The team notes that headline retail sales disappointed, but this was largely due to lower gasoline prices and a significant drop in nonstore (online) sales, which they attribute to the calendar shift of Amazon Prime Day into June this year. When these distortions are excluded, control group sales excluding nonstore retailers were up 0.4%, slightly above the average pace over the past six months, indicating steady underlying goods demand [1].
The report emphasizes that the boost from larger-than-usual tax refunds, which previously helped households offset higher gasoline prices, has now faded. As a result, consumer spending is increasingly reliant on income growth. Wells Fargo expects nominal personal income to have risen 0.3% in July, and anticipates that real disposable income will continue to gradually improve. If labor market conditions remain stable, year-over-year growth in real disposable income is likely to grind modestly higher in the coming months, supporting continued consumer spending [1].
On the inflation front, Wells Fargo does not expect significant surprises. The latest CPI and PPI reports suggest a 0.1% gain in the PCE deflator for July, which would nudge the year-over-year rate down to 3.6%. Core PCE inflation is expected to rise 0.2% for the month, leaving the annual rate at 3.3%. Although inflation remains above the Federal Reserve's target, recent data are consistent with a gradual easing in underlying price pressures [1].
The outlook provided by Wells Fargo suggests that while consumer spending and income growth are expected to remain steady, inflation is likely to ease gradually, but not yet reach the Fed's target. The market implications are moderate, as the data points to stability rather than dramatic shifts in economic conditions [1].
CONCLUSION
Wells Fargo forecasts modest gains in US consumer spending and income for July, with inflation gradually easing but still above the Federal Reserve's target. The fading impact of tax refunds means future spending will depend more on income growth. Overall, the market takeaway is one of steady progress and moderate optimism, with no major surprises expected.