American households slowed spending last month as falling gasoline prices helped offset an increase in services outlays – and the Federal Reserve’s preferred inflation measure rose by less than expected. Data released by the Bureau of Economic Analysis this morning showed inflation-adjusted household outlays climbing 0.2 percent in July – roughly corresponding with a previously-reported flatlining in retail sales. A $33.3 billion increase in spending on services was partly offset by a $9.6 billion drop in spending on goods, with energy costs dragging the number down.

In unadjusted terms, personal income rose 0.2 percent month-over-month, led by a solid 0.8 percent increase in private-sector wages and salaries.

The core personal consumption expenditures index – the Federal Reserve’s preferred inflation measure – rose 0.1 percent from June, up 4.6 percent year over year – softer than consensus estimates which were set at 0.2 percent and 4.7 percent, respectively.

Yields dropped after the release, and the greenback slipped as the case for a 75 basis-point move at the Federal Reserve’s September meeting grew weaker – but this response could fade quickly, with Chair Jerome Powell set to address the world from Jackson Hole in less than an hour and a half.

Karl Schamotta, Chief Market Strategist