Stronger GDP Raises the Stakes for Winning Consumer Dollars

Inflation surged in August, yet consumers continued to spend more. The Bureau of Economic Analysis revised the second-quarter GDP growth upward by 0.7 percentage points, driven by increased consumer spending. Consumer spending rose across both goods and services, with recreation and other services contributing to the services revision.

The personal consumption expenditures price index increased 5.0% annually in the second quarter, up from 4.2% in the first quarter. Consumer spending surged 0.9% in August after 0.1% in July, while real disposable personal income remained stagnant. Despite higher spending, real disposable income only increased by 0.3% in August, indicating that consumers were spending more without a corresponding rise in their income.

PYMNTS Intelligence's research reveals that 34% of U.S. adults are "reactive" consumers whose spending and savings have decreased, while 21% are "proactive" consumers who are taking measures such as negotiating bills or using buy now, pay later options. Forty-five% of consumers are "balanced," holding spending flat or increasing it with minimal coping activity.

However, among the "reactive" consumers, discretionary purchases such as entertainment, dining out, and pet-care spending remain relatively protected. The government data show that consumers spent more in real terms during a month when their real disposable income did not rise, indicating that the strength in GDP and consumer spending is driven by households with varying levels of financial resources and differing opinions on which purchases they will cut first.