In July, U.S. consumers spent 0.7 percent more dollars compared to June and 3.2 percent more than a year earlier, the commerce department reported. Retail sales on items other than energy and food were up 1.0 percent from the month before.

However, the figures are not adjusted for inflation, which ran at 3.2 percent in July. As a result, consumers did not increase their overall volume of purchases last month, compared to July 2022.

Core inflation, which screens out food and energy costs, registered 4.7 percent last month, down from 4.8 percent in June. As a result, other than for food and fuel, shoppers once again paid more to buy less.

“It is encouraging that non-fuel prices remain subdued, which has offset some of the impact from higher fuel prices, but also signals that disinflationary pressure is widespread,” U.S. economist Matthew Martin at Oxford Economics said in comments quoted by Reuters.

Last month shoppers spent freely on clothing, hobby items, and sports equipment. Bars and restaurants saw 1.4 percent more in their tills. Shoppers also left more dollars with grocery and department stores.

Online shopping increased 1.9 percent, getting a boost from Amazon’s Prime Day promotion in July, which brought the company a record haul and probably brought forward some spending from this fall.

Other categories that showed gains:

● Books and musical instruments, up 1.5 percent

● Building centers and garden stores, up 0.7 percent

● Clothing, up 1.0 percent

● Gas stations, up 0.4 percent

Auto dealers did less well last month; sales dropped 0.3 percent. Furniture store sales were off 1.8 percent. Appliances and electronics sales were down 1.3 percent

Consumers’ relentless spending moved Goldman Sachs to hike its estimate for U.S. third-quarter GDP from 1.5 percent to 2.2 percent. The economy expanded by 2.4 percent in the second quarter.

“The [July spending] report dispels any lingering recession fears and shows how the healthy labor market is paying dividends for consumers,” David Russell, TradeStation’s vice president of Market Intelligence, told Reuters. 

However, “there’s a danger that today’s good news for Main Street will become bad news for Wall Street,” he added.

A strong labor market and steady consumer demand could give new strength to inflation and prod the U.S. Federal Reserve to raise interest rates again.

Few seem concerned about that. “As long as core inflation continues to fall rapidly, resilient growth won’t in itself be enough to prompt further rate hikes from the Fed,” deputy chief U.S. economist Andrew Hunter at Capital Economics said to Reuters.

TRENDPOST: The race is on: workers are being paid more while also whittling down their savings and maxing out their credit cards so they can continue to buy.

Unfortunately, the race is weighted against shoppers.

Wage gains are slowing while core inflation continues at a pace exceeding pay increases.

“The momentum for consumers will eventually run out of steam,” Ben Ayers, senior economist at Nationwide, told Reuters.

When it does, the U.S. economy will move quicker toward recession: consumer spending sustained more than two-thirds of GDP in the first half of this year.