Consumer spending edges higher; Industrial property recovery projected; Immigration policy shifts could shrink labor pool

July’s total U.S. household spending rose $112.3 billion, or 0.4%, from the prior month, led by categories including motor vehicles, insurance and housing, as a closely watched inflation index also moved higher ahead of the Federal Reserve’s next meeting on interest rates.

The Commerce Department’s latest personal consumption report showed household income also increasing by the same 0.4% as prices rose at an annual rate of 2.6% for all items, unchanged from June. But core inflation, with volatile food and energy costs excluded, reached 2.9%, up from June’s 2.8% and the highest since February.

The Federal Reserve previously set a 2% target for core inflation before making its next interest rate cut, though Fed leaders have recently said slowing employment could help justify a rate reduction soon. The Fed’s next rate-setting meeting is set for Sept. 16-17, and several economists have predicted at least one reduction before year’s end.

“The Fed opened the door to rate cuts, but the size of that opening is going to depend on whether labor market weakness continues to look like a bigger risk than rising inflation,” Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management, said in a research note regarding the latest personal consumption data. “For now, the odds still favor a September cut.” 

U.S. demand for industrial space is expected to rebound in 2026 and 2027 after recently hitting a rough patch caused by factors such as slowing employment and uncertainty over import trade tariffs, according to a report from commercial real estate trade group NAIOP.

“In the near term, the market for industrial space will likely continue to soften as new supply outstrips demand,” analysts Hany Guirguis of Manhattan University and Joshua Harris of Fordham University wrote. After a sluggish 27 million square feet of U.S. industrial space take-up in the first half of 2025, net absorption, or move-ins versus move-outs, is projected to reach 58.8 million square feet in the fourth quarter of 2026 and 60.9 million square feet in the second quarter of 2027.

Slow recovery is expected as industrial users adjust to the new tariff regime, but even as demand rebounds, the pace of growth over the next two years is likely to be slower than the 2020-2022 period or the six years preceding the pandemic, analysts said.

Industrial space take-up has slowed in 2025 because of factors such as tariff uncertainty, which in turn has slowed orders for items like durable goods that affect property demand. The Commerce Department said July’s new orders for goods meant to last more than three years, such as appliances, computers and other business equipment, dropped 2.8% from the prior month and have declined three of the past four months. 

Immigration policy shifts could significantly decrease labor supply or slow its growth in many states in coming years, especially if deportations of unauthorized migrants continue at their current pace, according to a report from forecasting firm Oxford Economics. Labor supply could tighten considerably if nationwide in-migration falls far below its current projected 2025 level of 500,000, already well below the pre-pandemic annual average of about 1 million.

“Unauthorized migrants play a role in alleviating shortages in local labor markets as they are a potent source of prime-age labor supply and are more likely to migrate to states with greater labor demand,” Oxford Economics Lead U.S. Economist Bernard Yaros said in the report. “So far this year, states with already large shares of undocumented residents are experiencing the biggest reversals in net unauthorized migration.”

Analysts have noted that immigrants comprise a large share of the workforce in industries such as hospitality and agriculture. As it stands, a new Labor Department report said the U.S. is on track to add a total of 5.2 million jobs for a 3.1% gain for the 2024-2034 period, reaching 175.2 million. That growth rate would be much slower than the 13% rate for the 2014-2024 period.