The US tech spending in July has noticeably skyrocketed despite inflation exceeding the Federal Reserve's target.
A new study from the Bureau of Economic Analysis indicates that consumers are propping up the economy, but at a price: many are digging deep to maintain spending as prices rise.
Inflation Pressures Remain High
The Fed's go-to measure of inflation, the personal-consumption expenditures (PCE) price index, climbed 0.2% from last month and 2.6% from last year based on the study. Core PCE, which doesn't include food and energy, increased 0.3% since June and 2.9% from a year ago, up from June's 2.8%. These numbers verify that consumer spending may be holding up, but inflation continues to pinch household budgets.
What Consumers Are Buying
The bulk of the spending was on durable products like autos, appliances, and even investments in tech. Discretionary expenditure on vacations, restaurants, and entertainment, in contrast, retreated, a function perhaps of increased service prices.
Surveys conducted by the University of Michigan showed consumers anticipating prices to increase 4.8% in the next year, with confidence falling to a low since the summer.
Tariffs and Trade Pressures
One of the largest impending challenges is the continuation of high tariffs under the Trump administration. These tariffs have the potential to dramatically impact industries dependent on imported components, especially technology and manufacturing. Increasing chip, hardware, and logistics expenses may come to directly impact consumers later.
Tech Spending Remains Strong
Even with increasing costs, technology is a shining exception. American tech expenditures are projected to hit $2.7 trillion in 2025, and consumer tech buying reached an all-time high of $537 billion, the Consumer Technology Association reports. Durable goods across the board climbed 1.9% in July, their biggest increase since March, which indicates that the appetite for expensive items is still very much alive.
Income vs. Spending Gap
Gizmodo reports that personal income rose 0.4% in July, supported by higher wages. Yet spending outstripped income, which has raised fears that families are tapping into savings. The personal savings rate remained at 4.4%, a little buffer if inflation accelerates.
Economists caution that consumers are still solid but dependent on saving today will strip household finances bare in the coming months.
The Bigger Risk
The real economic test could develop over the next six months as tariffs work their way through supply chains and companies pass along increased expenses to customers. Some economists warn of a "stagflation-lite" period, slower growth combined with ongoing inflation.
In the absence of the pandemic-era savings cushion, families now might have a harder time coping with price hikes, and companies might react by cutting employment to help cover costs.
Markets first fell on the news but steadied as inflation figures were in line with forecasts. Economists warn that though the U.S. economy has not yet revealed significant fissures, the next few months will be decisive.
If tariffs make costs squeeze harder and consumer frugality erodes, the Federal Reserve could feel increasingly pressured to lower rates to head off a recession.
Originally published on Tech Times
Join the Conversation