Americans are still spending — but they’re changing where and how they spend.

Consumer spending is up 4.5% from a year ago, but households are increasingly trading down to cheaper stores, lower-priced goods and more affordable housing. PhD economist Orphe Divounguy explains why that matters for the economy and for the Federal Reserve.

More than half of new homes sold in August were priced below $400,000, compared with about 46% a year earlier. With mortgage rates rising above 7%, Divounguy expects builders to continue offering incentives, cutting prices and shifting toward smaller, less expensive homes.

The bigger question is whether businesses can continue raising prices. With consumers becoming more price-sensitive and the labor market remaining weak, businesses are struggling to pass higher costs from tariffs and energy onto shoppers.

Chris Krug and Orphe also break down what to watch in Wednesday’s Personal Consumption Expenditures inflation report and why core PCE could remain around 3.3% year over year.

Everyday Economics is hosted by Chris Krug and PhD economist Orphe Divounguy and is brought to you by The Center Square Newswire Service.

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