US Spending Data Shows Shrinking Consumer Cash Cushions

While most everyone is parsing the consumer spending data from August, and while consumer spending continued to rise, there are some numbers that give one pause.

While spending rose, inflation remains stubbornly in place. And the personal consumption expenditures (PCE) price index increased 0.6% in August, while food prices went up 0.8%, the Commerce Department Friday (Sept. 30).

As for the seemingly troubling information, the report showed some important metrics have changed from January to August. The cash cushions are dwindling, and disposable income, as measured over time, is dwindling too.

A bit of explanation is warranted here: The Commerce Department, in certain line items, makes mention of “chained dollars.” This is a way of adjusting real dollar amounts for inflation, over a long period of time.

Data from the department’s Bureau of Economic Analysis (BEA) showed that personal saving as percentage of disposable income is 3.5%, down from 4.7% as recently as the beginning of this year. At the same time, disposable income is on the downtrend, if measured against 2012 chained dollars (i.e. adjusted for inflation) to $15 trillion, where it had been $15.1 trillion at the beginning of 2022.

Those line items illustrate that the cash cushion is dwindling. And the findings dovetail with PYMNTS research.

Read more: Savings Not Enough to Blunt Paycheck-to-Paycheck Pressures

The paycheck-to-paycheck economy now includes the majority of Americans, across all income levels (the Commerce Department’s data also is all-encompassing). And in an age when nearly half of U.S. consumers have faced at least one unexpected expense in the last 90 days — on average, $1,400, the cash stockpile gets smaller. Forty percent of consumers have spent more than they have earned in the past six months.

Savings for people who live paycheck to paycheck but don’t have issues paying their bills have dipped to a bit more than $6,800, down from more than $8,300 at the peak.

The situation seems a bit ominous for the paycheck-to-paycheck consumers who are struggling with expenses. The average savings here stands at less than $3,000, down from more than $4,000 at the peak.

Inflation eats away at wage growth and forces us to spend what money is on hand (a hit to savings). The slow-but-steady loss of income that could be used to pad savings becomes more pronounced. The vicious cycle winds on, resulting in a cash crunch that winds up being to nobody’s benefit.