US: Spending and Inflation Outlook – Wells Fargo

The latest forecasts released by the Wells Fargo economics team indicate that U.S. consumer spending is expected to post modest growth in July. The bank projects nominal personal income to rise 0.3% month-over-month, while personal consumption expenditures are expected to grow 0.2%. This moderate growth trajectory suggests that while consumption remains resilient, its expansion momentum is not robust.

**Tax Refund Boost Fades, Demand Returns to Income-Driven Growth**

The team specifically highlighted that the tax refund factor, which previously provided strong support to consumption, is now weakening. As this temporary fiscal stimulus fades, future consumer demand will become more reliant on underlying income growth. This implies that labor market performance and the pace of wage growth will be key variables determining the trajectory of consumption going forward. If income growth fails to effectively take over the baton, consumer spending could face downward pressure.

**Inflation Outlook Remains Sticky**

Alongside moderate spending growth, the inflation outlook remains a key focus. According to Wells Fargo's analysis, inflation is expected to peak at 3.7% year-over-year and remain in a sticky range of 2.7% to 3.1% for the remainder of the year. This assessment implies that price levels are unlikely to rapidly return to the Federal Reserve's target in the near term, and sticky inflation will continue to erode household purchasing power, potentially dampening real consumer spending growth.