PCE data paints a solid picture, but hidden cracks show tariffs quietly squeezing U.S. consumers

July’s PCE report showed consumers spending resiliently, with inflation matching expectations. But beneath the surface, there was a pullback in spending in discretionary categories—a bad sign when combined with last month’s weak job growth.

On paper, the July personal income and outlays report on Friday looked solid. Personal income rose 0.4% on a monthly basis, spending increased 0.5%, and the Fed’s preferred inflation gauge—the core PCE price index—climbed 0.2% as expected. Taken at face value, it’s the picture of a consumer still propping up the economy, despite the cloud of uncertainty from tariffs and weaker jobs growth.

But scratch beneath the surface, and some cracks start to show.

Wells Fargo economists noted that July’s spending growth masked a pullback in discretionary cat