Topline
Americans’ leftover income fell to its lowest level since 2022 last month, according to government data released Friday morning, as the effects of the high-inflation economy roar even as headline economic growth proves strong and the stock market trades at record levels.
: Last month, Americans saved less than half of what they did in June 2019 proportionally.
Key Facts
The national personal saving rate, the proportion of monthly disposable income leftover after expenditures, fell from 3.5% in May to 3.4% in June, according to the Bureau of Economic Analysis’ monthly release on personal income and outlays looking at how Americans spend and save.
That’s the lowest monthly reading since December 2022.
The 3.4% savings rate is less than half of June 2019’s 7.1%, before the COVID-19 pandemic upended the economy and how Americans allocate their money.
And the personal saving rate never fell below 4.5% for the entire 2010s, indicative of the financial challenges many Americans face today despite robust overall growth.
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Key Background
The data was a secondary component of the release, which includes the Federal Reserve’s favored core personal consumption expenditures (PCE) inflation metric, which matched economist estimates of 2.6% inflation, the 40th consecutive month in which core PCE came in above the Fed’s 2% target. The extended period of higher-than-normal inflation helps explain why consumers are saving so much less than they used to, as spending power diminished. Americans are feeling the pain, as the University of Michigan’s consumer sentiment index was 33% lower this July than in July 2019. Still, the U.S. remains far from a recession, with overall economic output coming in at 2.8% last quarter, far better than economist forecasts of 2.1%. PCE’s sister consumer price index inflation metric, which came out July 11, came in much better than expected, revealing the first month-over-month decline in prices since 2020, offering a morsel of hope for wallets nationwide.
What To Watch For
The rate-setting Federal Open Markets Committee will meet next Tuesday and Wednesday, with all eyes on when the central bank will enact the first rate cut since 2020. Traders price in just a 7% chance of a cut next week, according to CME FedWatch Tool, but place 100% odds of a cut by the following meeting, in September. Lower rates should in theory help consumers save more, as interest payments on new loans will be lower.
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