Inflation, income, and spending numbers for June shows more proof of a stalling economy

The day before we got a jobs report that seemed to have a big changes on a lot of people's vibes on the economy, we had the income and spending report of June, and that also should have been a warning sign that things weren't in a good place as Q2 ended.

Inflation. It was similar to the bump up that we saw with the Consumer Price Index a couple of weeks ago. The Personal Consumption Expenditures Index was up 0.3% for both core and overall prices, which is slightly above what the trend had been in recent months.

A big pop in core PCE inflation in June. Annual rates: 1 month: 3.1% 3 months: 2.6% 6 months: 3.2% 12 months: 2.8% No matter what horizon you're looking at this is too high. (Although there is a case that it is transitory due to tariffs.)

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— Jason Furman (@jasonfurman.bsky.social) July 31, 2025 at 8:09 AM

As I’ve said before, I don’t see inflation of 2.5%-3% as a big deal in itself. But on its own, it also shouldn't cause the Federal Reserve to resume cutting interest rates from the 4.25%-4.5% Fed Funds rate that we are at today. With the indications that businesses have seen price pressures increase recently due to tariffs and related effects, why would inflation slow down any time soon?

Income growth. Seems like it’s not bad at a 0.3% increase overall. But out of $71.4 billion (annualized) of income growth, less than ¼ of it came from wages and salaries ($17.2 billion), while over $40 billion came from Social Security and Medicare benefits.

It continues a trend where workers have seen lower increases in income in each of the last 3 months, and there aren't large, one-time boosts in Social Security income

like we had in the first few months of 2025.

June had the weakest growth in wages and salaries in nearly a year, and the decline in income growth is certainly not a trend you want if you want the economy to stop its stumbling.

Consumer spending. It was also up by 0.3%, which was a decent bounce back from the decline we had in May. But that’s also no different than the 0.3% rate of inflation, and after adjusting for price increases, consumer spending in June was less than what it was in March.

As UW-Madison professor Menzie Chinn notes, consumption in durable goods has jumped around as consumers have tried to work around the tariffs since Trump's election in November 2024, but both durables and the rest of US consumption is trending lower in 2025.

Consumption growth in the first half of this year was also the weakest 6-month period (non-COVID) since early 2019 – the last time Trump was in office and conducting a trade war, adding to the evidence that economy was sputtering as Q2 came to an end. Recall that the main driver of the 3% GDP “growth” for the last quarter was due to the reversing of the surge of imports that happened in Q1 to get ahead of tariffs, and not actual economic activity.

After reading the income and spending report on Thursday, I was thinking this.

We haven’t seen the layoffs that we’d expect with these subpar growth levels, and it makes me wonder how long that can be held off if there’s little to no wage or spending growth.

Things aren’t adding up, and it feels like we’re on the verge of some change in trend that sets the tone for the rest of 2025 and start of 2026. Is that a resumption of spending and income growth to help the economy, or higher unemployment and the economy officially going into recession? One of those two things have to be in the data sooner than later, right?

Then on Friday, we got the answer, with the near-zero jobs growth matching the stalling overall economy.