Q3 GDP Is Strong but Real Disposable Income Lags Spending Growth

woman shopping

The latest report from the Bureau of Economic Analysis, released on Wednesday (Nov. 29), noted the U.S. economy grew 5.2% annualized, as measured in the third quarter. That’s up from 4.9% previously estimated last month.

Inflation is slowing, per the data: The quarterly metric that measures consumer spending — the Personal Consumption Expenditures Index — overall was up 2.8%, which is a slightly downward revision of about 0.1%, per previous estimates.

And while Wednesday’s report was enough to buoy stock markets, as investors anticipated that rate hikes from the U.S. central bank may be off the table, there are some indications that consumer spending may be challenged in keeping its lofty pace.

The headline numbers show that disposable personal income increased $144 billion in the quarter, or 2.9%. But real disposable personal income — which represents what’s left on hand to spend in the future, or perhaps find its way into savings accounts, adjusted for taxes and for inflation — was up 0.1%. Personal saving as a percentage of disposable personal income was 4%, up from the previous third-quarter update, though the boost was muted, at 0.2%.

Is the Growth Sustainable?

The fact that consumer spending is still strong, but disposable income growth is not keeping pace, and savings are still relatively muted (the personal saving rate peaked in recent years at north of 12%, per Fed data), are all hints that challenges are massing. PYMNTS Intelligence data has spotlighted that in the paycheck-to-paycheck economy — which includes more than 60% of U.S. consumers — many households have depleted savings to satisfy the demands of daily life. In fact, our findings are that only about a third of consumers earning more than $200,000 annually have found they’ve been able to increase savings.

Overall, consumers say they deplete 67% of all available savings, on average over four years, a short period of time. With a bit more granular detail, our paycheck-to-paycheck respondents report that the depletion comes even sooner, within 2.5 years. Aggregate consumer savings amounted to an average of $11,000 per consumer in September 2023. This amount is roughly unchanged from September 2022. But when adjusting for inflation, the impact is stark: Real savings actually dipped by 7% over the same timeframe.

The GDP data, of course, are backward looking, and we’re already more than two months past the end of the third quarter. In the meantime, there are indications of some pressure hitting consumers’ wallets.  The recent PYMNTS Intelligence survey of Black Friday shopping revealed that roughly the same number of consumers made purchases this year as last — and yet they only made 20% of their planned holiday spending this year, compared to 22% last year.

Time will tell if the third quarter of 2023 will represent a high-water mark for consumer enthusiasm to keep spending.