Savings Rates Pressured as Consumer Spending Outpaces Disposable Personal Income Growth

The latest data on personal consumption notes that spending is outpacing the growth in disposable income.

And as a result, consumers are dipping into savings to keep their spending apace.

The latest personal income expenditures (PCE) price index from the Bureau of Economic Analysis indicates that inflation is still very much alive. In March, inflation ran at an annualized 2.7% pace, quickening from February’s 2.5% rate.

Consumers are still spending, even in the face of inflation. Personal spending gained 0.8% month on month.

Personal Saving Rates Decline

But personal income was up 0.5% during the same period, which means that money has to come from … well, somewhere. The personal saving rate as a percentage of disposable income fell to 3.2%, which is 0.4% lower than the February reading and down by nearly 2% last year.

The tables show that personal saving in the month was $671 billion, down from $739.1 billion in February and significantly lower than the $909 billion seen as recently as August of last year.

Personal interest payments — which includes the obligations of credit card debt — were nearly $549 billion in March, adding to the $537.8 billion in February and significantly higher than the $519 billion last August.

Drilling down into where the money’s going, the prices paid for services were up 0.4% in March, outpacing the 0.1% gain in prices spent for goods. “Within services, the largest contributors to the increase were health care (both outpatient and hospital services) and housing and utilities (led by housing),” said the BEA. Food prices declined 0.1% for the month.

Inflation Makes it Harder to ‘Plug’ the Gap

PYMNTS Intelligence data has indicated that coming into the end of the year, more than three-quarters of consumers reported using a significant percentage of their saved income on various expenses. Moreover, consumers say they deplete 67% of all available savings, on average. The average consumer faces such depletions once every four years.

But we found, too, that among paycheck-to-paycheck consumers, the average recurrence drops to once every 2.5 years. Inflation’s taken its toll on savings, too — in terms of the real purchasing power of those saved dollars and the ability to “plug” the gap between income and continued spending. The average amount that is readily available in savings real terms has dipped 7% since September 2021.

Unanticipated expenses — especially emergencies — have hit the cash cushions too. Seventy-eight percent of all consumers surveyed recall having at least one expenditure that required them to withdraw a sizable portion of their savings. That share rises to 90% among paycheck-to-paycheck consumers with issues paying their bills.