US Savings Rate Takes a Hit as Consumer Spending Outpaces Income Growth

Published / Modified Mar 29 2024
Source: U.S. Bureau of Economic Analysis, CSIMarket Team / CSIMarket.com

According to the recent Economic Report from the Personal Income and Outlays, the savings rate in the United States dropped to 3.6% in February 2024.
This decline in savings can be attributed to the fact that consumer spending increased at a faster pace than income growth during the same period.

The data released by the Commerce Department revealed that personal income increased by $66.5 billion (0.3% monthly rate) in February, reaching a total of $23.69 trillion on a seasonally adjusted basis.
Although this represents a modest increase, it lags behind the growth rate observed in the previous month.

Disposable personal income (DPI), which measures personal income after deducting personal current taxes, witnessed a smaller increase of $50.3 billion (0.2%).
The lower growth in disposable income can be attributed to a 0.5% increase in taxes during February, with the average income for every American standing at $61,579 on an annualized basis.

A substantial portion of the income growth was driven by wage increases, with the manufacturing sector experiencing the highest surge.
Even though salaries in the government sector also witnessed growth, the supplements to wages and salaries were relatively low compared to total wages.
Employers increased contributions for government social insurance, thereby impacting the overall income growth.

Consumer spending, on the other hand, surged by $145.5 billion (0.8%) in February, outpacing the growth in personal income.
It is important to note that this increase in consumer spending has been sustained, but rising prices are absorbing a significant portion of the additional income.
As a result, the savings rate dropped from 3.8% in January 2024 to 3.6% in February 2024.

The report indicates that durable goods, such as cars, computers, and furniture, experienced a significant increase in consumer spending.
However, it is crucial to highlight that this category is highly volatile and subject to substantial monthly fluctuations.

The decline in the savings rate raises concerns about the sustainability of consumer spending in the near future.
While households continued to spend in February, the rising prices are likely to impact their purchasing power.
It remains to be seen how this trend will evolve in the coming months and whether the savings rate will rebound.

In conclusion, the latest economic report highlights the downward trend in the US savings rate as consumer spending outpaced income growth in February 2024.
Despite an increase in personal income, the slower growth in disposable income and the impact of rising prices have contributed to the decreased savings rate.
Policymakers and economists will closely monitor these developments to assess the implications for the overall economy and the well-being of households.


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