There’s a question buried in this week’s US economic data that sounds simple but is surprisingly hard to answer: when Americans spend more money, does that mean they’re buying more, or just paying more for the same stuff?
Those are completely different things, and it’s important to tell them apart. If people are buying more, then the economy is genuinely strong. But if they’re just paying higher prices for the same amount of goods, then the economy is actually weakening, while looking healthy only on the surface.
And the two big reports that landed this week each have a blind spot that makes this question harder to answer.
We already got a preview from the inflation report earlier this week. Headline inflation fell 0.4% in June, the biggest one-month drop since 2020, pulling the annual rate down to 3.5%. But the entire drop came from one thing: cheaper energy, because oil fell during June’s ceasefire. Take energy out, and the underlying inflation rate, what economists call “core,” didn’t budge at all. It stayed flat, holding at 2.6% for the year.
So a number that looked like real progress was almost entirely one volatile category doing the work, which is why Bitcoin‘s bounce on the news may already be fading.
June retail sales came out Thursday morning from the Census Bureau. While they’re usually a pretty good indicator of spending, the numbers are reported in raw dollars and aren’t adjusted for inflation at all. So if prices went up 1% and people bought the same amount, retail sales would still show a 1% “increase,” even though nobody bought a single extra thing.
Then Friday brought import prices, which measure what the US pays for goods coming in from abroad. They leave out tariffs and customs duties because they’re built to measure trade flows, not what shoppers actually pay. So if tariffs are pushing up the cost of imported goods, this report won’t catch it.
One report can make spending look strong by ignoring inflation, and the other can make price pressure look mild by ignoring tariffs.
The June retail number walked straight into the first trap: it came in at a soft-looking 0.2%, but the softness was almost entirely gasoline, and underneath it, the consumer looks steadier than the headline suggests.
Meanwhile, Bitcoin has climbed back to around $64,700 on the back of that soft inflation report, which raises the stakes on whether the spending data confirms real strength or just more of the same price illusion.
The difference between spending more and buying more
In May, retail sales came in at $763.7 billion, up 0.9% from April. On its face, it looks like a healthy jump, but we need to remember that the figure isn’t adjusted for inflation. When economists stripped out rising prices to see how much people actually bought, the real increase was closer to 0.4%.
So roughly half of that “strong” 0.9% wasn’t extra shopping at all, just higher prices. And a big piece of it came from gasoline stations, where sales rose 3.4% because fuel got more expensive during the war, not because anyone was filling up more often.
The data from June showed there was a similar effect on the market. Headline sales rose only 0.2%, and at first glance, that looks like a consumer running out of steam. But the drag came almost entirely from one place: gasoline stations posted their biggest drop since December 2022, because gas got cheaper during the ceasefire, not because people suddenly stopped driving.
It’s the mirror image of May, when a jump in gas prices flattered the headline, and of the hot energy-driven inflation prints earlier this year that knocked Bitcoin lower. So the lesson here is that when fuel prices jump, they inflate the retail figure, and when they drop, they deflate it, and neither tells you much about whether the underlying consumer is actually healthy.
This is exactly why the details matter so much here. Strip out both autos and gas, and sales actually rose 0.4%, which is softer than earlier in the year but still positive. The control group, a narrower measure that strips out the noisiest categories and feeds directly into the government’s GDP math, climbed a solid 0.5%. Online shopping and car dealers led the gains.
Even crudely adjusted for inflation, real spending bounced to its highest since early 2022. So the picture underneath the weak-looking top line was a consumer who kept spending in June, just on cheaper gas. While that shows resilience, it comes with a catch: people have been spending faster than their incomes are growing, which can’t go on forever.
Import prices tell the other half. Friday’s Bureau of Labor Statistics release showed import prices rose just 0.3% in June, a sharp deceleration from the 1.9% jump in May and the 2.0% rise in April. Export prices fell 0.6%, the first monthly decline after six consecutive advances.
The import slowdown was almost entirely fuel; petroleum and natural gas prices dropped as the June ceasefire temporarily suppressed energy costs. Nonfuel imports still crept up 0.1%, with capital goods, industrial supplies, and consumer goods all posting small gains. Over the past 12 months, import prices are still up 6.7% and export prices up 11.2%, but the June monthly figures show the same temporary energy relief that distorted the inflation and retail numbers.
That mild June figure tells you nothing about whether import taxes are still working their way toward store shelves. The ceasefire collapsed on July 7 and 8, and oil has jumped more than 15% since, so July’s data will look nothing like June’s. And because this report ignores tariffs entirely, a calm June figure offers no comfort on whether the cost of imported machinery, electronics, and auto parts is still rising beneath the surface.
There’s a third report that acts as a tiebreaker, and it’s the most useful of the bunch. Industrial production measures how much American factories actually made, and the Federal Reserve’s June data, also released Friday, showed manufacturing output stalled completely.
Durable goods production declined, led by drops in machinery and electrical equipment, while nondurables eked out a small gain. Total industrial production edged up only because utilities spiked on summer demand, not because factories were busy. Capacity utilization for manufacturing fell slightly to 75.7%, still well below the long-run average and a signal that plants have plenty of idle space.
That factory stall matters because it resolves the ambiguity in the spending data. If consumers were truly buying more real stuff, you would expect factories to be ramping up to meet that demand. Instead, manufacturing output went sideways, and durable goods production fell.
The gap between spending dollars and making things is widening, which suggests a lot of that consumer money is still going toward higher prices and imported goods rather than domestic output.
Every month, the New York Fed asks people what they expect in terms of inflation and costs. In June, they said they expect to spend 5% more over the next year, but to earn only 3% more.
If you plan to spend more than you earn, that money has to come from somewhere. You dip into savings, put more on credit cards, trade down to cheaper brands, or you accept that your money buys less than it used to. None of those are the behavior of a confident, thriving consumer. They’re the behavior of someone getting squeezed.
The rest of that survey backs it up. People’s inflation expectations for the year ahead actually rose to 3.7%, the highest since 2023, even though they expect gasoline to get cheaper.
So where’s the inflation worry coming from? The stuff you can’t skip: households expect medical costs to rise 9.4% and rent to rise 8.3% over the next year. The cheap-energy relief that made this week’s headlines does absolutely nothing for the bills people can’t avoid.
Why a “strong” number could still hurt Bitcoin
You’d think a strong economy is good for Bitcoin, but it’s often the opposite.
That soft inflation report is what gave Bitcoin room to rally this week because it made investors think the Fed might ease up on interest rates. But the retail data cuts against that hope. The headline looked weak, yet the parts that actually measure demand held up, and the control group that feeds GDP rose a healthy 0.5%. A consumer who keeps spending tells the Fed the economy doesn’t need help, which is an argument against cutting rates.
When you pair that with core inflation that refuses to fall and factory output that just stalled, the Fed lands in the worst possible spot. Strong spending removes the case for a rate cut, and sticky inflation raises the case for a hike. And if factory output weakens, there is no real growth to cushion any of it.
Prices that won’t quit next to growth that won’t accelerate, so that combination is the one scenario the Fed can’t ease into, and higher-for-longer rates drain money away from risky assets like Bitcoin.
The Fed is currently holding rates at 3.50% to 3.75%, and nine of its 18 officials expect at least one more hike this year. After this week’s soft inflation data, markets put the odds of a September hike around 50 to 63%, down from 75% a day earlier, but still very much alive.
This is the same collision between a new Fed chair and stubborn inflation that has capped crypto for much of the year. Government bond yields eased after the inflation report, which is the tailwind Bitcoin has been riding. The steady retail figure, the stalled factory output, and the renewed oil spike both threaten to reignite the inflation fear and take that tailwind away.
June’s retail report showed a consumer who is still spending, once you look past the gasoline distortion. Genuinely strong spending, backed by real buying and rising factory output, would eventually be good for risk assets, Bitcoin included, because real growth lifts everything.
But the problem is the shape of that spending. Households are spending faster than they earn, core inflation won’t fall, manufacturing just stalled, and a fresh oil shock is already building in July’s numbers.
June’s retail numbers got called “weak,” but the label missed the point. The figure that actually decides what’s going on is the one nobody publishes: how much stuff Americans actually took home for all the money they spent. Strip out the cheaper gas, and the answer in June was: a little more, not a little less. But strip out the price illusion entirely, and the factory data says nobody is making much more of it.