Americans haven’t stopped spending. They are looking harder for a price they can live with.
Bank of America’s August card data show spending per household rose 4.5% from a year earlier. But big-box and general merchandise stores outperformed traditional retailers, suggesting shoppers are seeking lower-cost alternatives while continuing to spend. That is a more useful description of the consumer than a single strong or weak label.The last housing report for August tells a similar story, even among the relatively higher-income households who buy newly built homes. New home sales are about 2% lower than in 2025 mostly because builders are bringing fewer homes to market. The number of buyers was roughly unchanged from last year’s level. However, buyers are turning to cheaper homes. More than half of the homes sold cost less than $400,000, compared with 46% a year earlier. Buyers are still in the market, but more of them are choosing homes at the lower end of what builders offer.The broader point is that households are finding ways to keep buying. This week’s Bureau of Economic Analysis release of the Personal Consumption Expenditures report is likely to reflect a resilient American consumer.Start with spending. My retail-to-PCE model estimates that inflation-adjusted consumer goods purchases rose about 0.6% in August and 1.8% from a year ago. But strength is uneven: durable-goods spending is up, while nondurable spending is slightly below last year’s level.Then comes the price report. I expect headline PCE inflation to run hotter, pushed up by the gasoline surge already visible in consumer prices. Core PCE, which excludes food and energy, should be more restrained.My PCE inflation nowcast uses consumer and producer price measures available ahead of the release to estimate a 0.22% increase in core PCE prices in August. If the monthly figure lands near 0.22%, the annual core rate should hold around 3.3% on the currently published data. Over the past three months, core inflation has run closer to a 2.5% annualized pace. The underlying trend appears to be easing.There is one complication: Wednesday’s release includes the BEA’s annual update. Revisions to earlier months could change the reported annual inflation rate even if August lands close to the nowcast.Higher oil prices hurt families and businesses, and another rate hike will not produce more oil. The Fed should watch for evidence that the shock is spreading to other prices. It should also recognize that the bond market is already raising borrowing costs.Friday’s jobs report will show how much room the economy has to absorb that pressure. The labor market looks frozen: no longer clearly deteriorating, but hardly improving. Watch long-term unemployment and the number of people leaving the labor force. A steady unemployment rate offers little comfort if finding work takes longer or discouraged workers stop looking.If wage growth eases further, it would strengthen the case that labor demand is soft rather than that paychecks could drive up inflation. Meanwhile, higher long-term yields make mortgages and business loans more expensive. Some construction and investment projects will no longer pencil out. Commercial real estate borrowers with maturing loans, particularly troubled office properties, face refinancing pressure. As financing costs rise, businesses may postpone investment and eventually cut worker hours or jobs.August’s shoppers and homebuyers showed resourcefulness, not immunity to higher prices and rates. If Wednesday confirms easing underlying inflation and Friday shows a labor market still frozen, the Fed should be careful about adding to the tightening already underway.