Americans are spending faster than their income is growing

Data: Bureau of Economic Analysis ; Chart: Axios Visuals Americans are burning through their financial cushion at an accelerating pace, spending faster than their income is growing, as the energy shock from the Iran war slams household budgets. Why it matters: Consumer spending has indeed held up, defying rock-bottom sentiment readings. But there's new evidence that suggests households are increasingly drawing down savings to support their spending, a fragile dynamic for the broader economy. What they're saying: " While prices are rising faster than comfortable, incomes are not, putting consumers in an uncomfortable spot," NerdWallet senior economist Elizabeth Renter wrote. "Rising prices, sluggish income and economic uncertainty could set the stage for a broader pullback in consumer spending and therefore economic growth," Renter added. By the numbers: The personal saving rate fell to 2.6% in April, down from 3.2% in March and 4.3% in January — a sharp slide that brings it to its lowest level since mid-2022. Consumer spending rose 0.5%, even as disposable personal income fell 0.1%, the Commerce Department said Thursday morning. That gap between how fast consumer incomes are rising and how quickly they are spending is driving the drawdown in the saving rate. Gasoline and energy goods were the single-largest driver of spending increases in April, one sign of how the war's energy impact is registering in household budgets. Zoom in: The Personal Consumption Expenditures Price Index, the Federal Reserve's preferred inflation gauge, rose 0.4% in April, cooling from 0.7% in March at the height of the energy shock. There is still little evidence of the shock spilling over into non-energy-related categories. Core PCE, which excludes food and energy costs, gained 0.2% — cooling slightly from March. Still, compared with the prior year, core PCE ticked up to 3.3%, its highest level since 2023. As Fed governor Lisa Cook put it in a speech W...

Original source: Axios