The Federal Reserve’s preferred inflation gauge mostly held steady last month despite President Donald Trump’s broad-based tariffs, but a measure of underlying inflation increased.
Prices rose 2.6% in July compared with a year ago, the Commerce Department said Friday, the same annual increase as in June. Excluding the volatile food and energy categories, prices rose 2.9% from a year earlier, up from 2.8% in the previous month and the highest since February.
The figures illustrate why many officials at the Federal Reserve have been reluctant to cut their key interest rate. While inflation is much lower than the roughly 7% peak it reached three years ago, it is still running noticeably above the Fed’s 2% target.
At the same time, the report showed that consumer spending picked up last month and could boost economic growth, which weakened considerably in the first six months of the year.
Every month, consumer prices rose 0.2% from June to July, down from 0.3% the previous month, while core prices increased 0.3% for the second month in a row.
The figures are similar to those reported earlier this month in the more widely followed consumer price index, which has risen 2.7% from a year ago. The core CPI increased 3.1% in July compared with a year earlier.
Separately, the Friday report showed that consumer spending jumped 0.5% in July, the biggest increase since March and a sign that many Americans are still willing to open their wallets despite high interest rates and uncertainty surrounding the direction of the economy. Spending jumped sharply for long-lasting goods such as cars, appliances, and furniture, many of which are imported.
Incomes rose 0.4% from June to July, boosted by a healthy gain in wages and salaries, the report showed.
Fed Chair Jerome Powell has said the central bank will likely cut its key rate at its meeting next month. But policymakers are expected to proceed cautiously, and it’s not clear how many more rate cuts will happen this year.
When the Fed reduces its key rate, it often — though not always — lowers borrowing costs for things like mortgages, car loans, and business borrowing.
Trump has relentlessly pushed Powell and the Fed for lower interest rates since earlier this year, calling Powell “Too Late” and a “moron” and arguing that there is “no inflation.” On Monday, he sought to fire Lisa Cook, a member of the Fed’s governing board, in an effort to gain greater control over the central bank.
The age of conspicuous consumption has given way to the age of conspicuous thrift. The brag isn’t what you bought, it’s what you didn’t pay for. Shopping in 2025 is less about strutting out of a mall with the season’s latest must-have and more about holding up the receipt and pointing to the markdown.
The consumer who once flaunted a Gucci bag now flexes that they scored a Fendi baguette cheaper — and secondhand — on The RealReal. The shopper who once paid full freight at Abercrombie now brags about stacking promo codes or boasts about nabbing the same label half-off at Burlington. The splurge has morphed into a scavenger hunt, and retailers are being forced to adjust.
This week’s earnings parade made the shift hard to ignore.
Abercrombie, Kohl’s, and Foot Locker reported on Wednesday; Best Buy, Burlington, Dollar General, Dick’s, and Gap followed on Thursday. Each told the same story in different accents. Off-price chains are thriving. Dollar stores are luring even six-figure households. Mid-tier stalwarts are surviving only by dangling coupons or carving out “affordable luxuries” in their aisles. And the supposed big-ticket splurges — electronics, sneakers, apparel — are moving, for the most part, when they’re wrapped in discounts.
Consumers aren’t broke — they’re bargain-hunting. U.S. retail spending is still expanding; the National Retail Federation pegs 2025 growth at about 3%, nearly in line with pre-pandemic averages. Morgan Stanley expects consumer outlays to cool from almost 6% last year to closer to 4% this year, thanks to tariffs, debt loads, and a softer labor market. Translation: People are still shopping, but they’re shopping defensively.
And defense looks a lot like offense for discounters. McKinsey finds that nearly half of U.S. consumers now wait for sales before buying clothes or shoes, and nearly two-thirds say tariff uncertainty has already changed how they shop. What once looked like penny-pinching has turned into the new consumer sport: the promo-code Olympics.
The receipts back it up. Burlington’s revenue rose 10% and adjusted EPS jumped 42%, giving management the confidence to raise guidance for the second quarter in a row. Dollar General’s net sales rose more than 5%, EPS climbed 8%, and executives bumped their full-year outlook higher, noting that more affluent shoppers are now showing up for cheaper detergent and pantry staples. According to Placer.ai, Gap’s Old Navy quietly grew traffic about 5% on the back of jeans and basics pitched as affordable essentials.
The punchline is that those beats weren’t about carefree splurging; they were engineered with value — sharper mixes, private label, and promo timing that made shoppers feel like they’d won the price war. Earnings strength is coming from companies that are making the deal the draw. When retailers can show exactly how they’ll package value — and protect margins while they do it — investors listen.
Together, the numbers and the playbooks paint a consumer portrait that’s less about retreat than recalibration. Spending is steady, but shoppers want to feel clever about it. They’re not cutting back; they’re cutting deals.
The rise of bargain culture
The surge in off-price traffic isn’t an accident; it’s a macro barometer. Data from Placer.ai said that Burlington visits were up 8%, Five Below up 18%, and Ollie’s up 14% in the second quarter. Same-store visits — a cleaner measure that strips out store openings — rose almost 10% for some chains. In parking lots, that means cars spilling out of discount centers while department-store asphalt sits half empty.
That foot traffic translated into earnings beats. Burlington raised its guidance after reporting double-digit revenue growth and a 42% profit spike. Dollar General told investors that not only are core households shopping more, but higher-income families are migrating down market — a trade-down that no longer carries stigma. Old Navy quietly notched positive traffic and sales as its racks of jeans and T-shirts offered value at a time when consumers are scrutinizing every dollar.
The flip side is equally sharp. Kohl’s sales fell 5% in the quarter, its comps slipped 4.2%, and Placer.ai data confirmed that store visits were down nearly as much. Executives lifted EPS guidance anyway — from as low as 10 cents per share to as high as 80 cents — after convincing Wall Street they could lean on two crutches: beauty and bargains. Sephora shop-ins brought traffic through the doors, while coupons at the register and impulse aisles at checkout kept carts from looking empty. It’s less a turnaround plan than a tacit admission that full-price apparel is becoming more of a dead weight. The stock surged nearly 20% midweek, a sign that investors are willing to reward tactical execution even in a softening middle market.
Best Buy offered another variation on the deal-as-door-opener theme. For the first time in three years, comps inched positive, helped by demand for AI-ready laptops and smartphones. But traffic was still down 1%, and the company warned that tariffs could offset any momentum. Consumers still want the gadget, but mostly if it’s on sale. Foot Locker, meanwhile, remains in a funk. Global revenue declined 2.4%, and the company booked a net loss. Even in North America, where comps eked out a gain, the broader message was that sneakers are no longer bulletproof.
Dick’s Sporting Goods was supposed to be a bright spot, posting 5% comp growth and raising guidance. But the detail that traffic was down more than 5% cut through the cheer, and the muted stock reaction underscored investor caution. The retailer made more money, but it did so by squeezing more from fewer shoppers — bigger baskets, pricier gear. Several analysts framed the caution around sustainability — strong tickets won’t outrun soft trips — and around execution risk more broadly. Even good prints are getting graded on the “How durable is your value story?” curve.
Taken together, the week’s results show how bargain culture is reshaping behavior across income brackets. Consumers aren’t absent; they’re disciplined. They’ll fill carts at Burlington or Ollie’s, and they’ll still buy the laptop or the sneakers, but they largely expect the retailer to meet them halfway.
The deal has become the product.
Luxury learns about gravity
At the top of the market, the same psychology plays out in sharper relief. Hermès is still Hermès — quarterly sales up 9% even after the brand tacked on a 7% global price increase and an extra 5% hike in the U.S. to offset tariffs. Scarcity sells; exclusivity is impervious to sticker shock.
But Hermès might just be the exception.
LVMH’s sales fell 4% in the first half, with its vaunted fashion and leather goods unit tumbling 9% in the second quarter. Gucci cratered nearly 25%. Bain & Company and McKinsey now forecast that the personal luxury goods market could shrink by up to 5% this year — a rare contraction for an industry that has spent the last decade training consumers to accept serial price hikes. Price elasticity has finally hit high fashion, in a world where nothing else is stretchy.
The “aspirational” shopper — the professional willing to stretch for a Vuitton tote or a Gucci belt — is pulling back. The message is similar to what Kohl’s or Best Buy reported: Consumers will still spend, but not at any price. Unless the product is genuinely scarce or differentiated, they expect a markdown, a perk, a sweetener. In luxury, that means brands leaning on outlets and subtle discounting; in mid-tier retail, it means coupons and “shop-in-shops.” Different markets, same consumer instinct.
Abercrombie is a perfect example of what has largely become the new middle. The company raised guidance on the strength of Hollister’s back-to-school season, but it also warned that tariffs could carve $90 million out of its profit. To offset that cost, the company leaned on promotions that resonated with teens and parents trained to expect a deal. Old Navy is finding the same traction with basics. In both cases, the formula is clear: deliver value… or get ignored.
Macro conditions only reinforce the shift. Tariffs loom, inflation lingers, and consumers have become savvier about timing purchases around promotions. Retailers can no longer count on habit or aspiration; they have to sell savings as much as they sell shirts or shoes. The receipt itself has become part of the pitch. And in the market, the grading rubric has changed. Companies that can spell out how they’ll defend value without nuking margins are getting the multiple; everyone else is getting a lecture.
The larger picture is that American consumers are not retreating; they’re negotiating. They’ll still buy the sneakers, the hoodie, the laptop, even the luxury bag — but they want the story of savings attached. In some cases, that story is literal: Burlington’s traffic surging double digits, Dollar General reporting bigger baskets from new demographics, Old Navy pulling shoppers back with promotions. In other cases, it’s psychological — see: Hermès convincing its clientele that higher prices are proof of exclusivity, not inflation.
The macro economy rests on consumer spending, and by that measure, the floor is solid. But the texture has changed. Deals, discounts, and promotions aren’t perks anymore; they’re requirements. Retailers that embrace that are raising guidance. Those that resist are watching traffic bleed.
In the end, the shift is cultural as much as financial. The dopamine hit isn’t walking out with a full-price splurge — it’s pointing to the receipt that proves you beat the system. The brag is no longer, “I bought it.” The brag is, “Look how much I didn’t pay.”
The numbers: Initial unemployment-benefits claims fell in the latest week, easing concerns that a spike in the prior week was the start of a higher trend.
First-time jobless claims fell by 5,000 to 229,000 in the week ended Aug. 23, the Labor Department said Thursday.
The drop was in line with the forecasts of Wall Street economists surveyed by the Wall Street Journal.
Claims rose by a revised 10,000 in the prior week to 234,000. That was the highest level since late June.
Key details: The number of people already collecting unemployment benefits in the week of Aug. 16 fell by 7,000 to 1.95 million, the government said. These so-called continuing claims have been trending higher this year, a sign that laid-off workers are having trouble finding new jobs.
The number of new claims based on actual filings — that is, before seasonal adjustments — fell by 2,873 to 191,289 in the latest week.
Big picture: Economists are watching the claims data closely for signs of weakness in the labor market. Payroll employment slowed over the summer, but other indicators have pointed to a steady labor market.
A surprising jobs report early this month showed that payroll employment has only grown by an average of 35,000 jobs per month since May.
Federal Reserve Chair Jerome Powell indicated that the weakening labor market has changed his outlook for the economy and opened the door for a September interest-rate cut. Powell noted there is a risk that any sustained weakening in the labor market could snowball quickly.
The new retirement? No retirement.
Northwestern Mutual's 2025 study says Americans need $1.26 million to retire comfortably. Yet LinkedIn data shows baby boomers are returning to work at rates not seen since before the pandemic.
Last week, a friend who retired at 67 called me in a panic. His portfolio dropped 22% in 2022 while inflation ate into his purchasing power. "Andy, I'm going back to work," he said. "I can't shake the feeling I'll outlive my savings."
Here's what many retirees miss. It's not just about having enough money. It's about managing it through market cycles.
After 26 years as a financial advisor, I've learned the most successful retirees don't set their allocation and forget it. They stay tactical within guardrails.
The 10% Rule That Changes Everything:
Start with your strategic allocation—let's say 60% stocks, 40% bonds. But give yourself permission to adjust plus or minus 10% based on market conditions.
Economy humming? Maybe you're 70/30.
Recession clouds forming? Dial back to 50/50.
You're always balanced. Always diversified. But you're not sitting still while markets shift around you.
My friend? Instead of going back to full-time work, he's consulting. Working 10-15 hours a week doing something you enjoy? That's not failure. That's freedom. It lets your portfolio breathe while keeping you engaged.
The new retirement reality... your best hedge against outliving your money isn't just saving more. It's staying flexible, both with your portfolio and your plans.