Personal Savings Decline As Inflation Takes a Toll

Number of the Day: The most relevant or interesting figure in personal finance

4

That’s how many years it’s been since consumers saved so little in a month, according to government data released Thursday, reflecting how much the recent surge in inflation has eaten into incomes.

The seasonally adjusted annual personal saving rate—that’s the share of after-tax income that consumers save after spending—fell in November for the fourth straight month to 6.9%, the lowest level since December 2017, when it was 6.6%, the Bureau of Economic Analysis said. That’s a far cry from the record saving rate of 33.8% recorded in April 2020, around the start of the pandemic, when incomes were bolstered by pandemic aid and spending was constrained by shelter-in-place orders.

The steady decline in the saving rate is a reflection of reduced government aid as well as soaring inflation. The personal consumption expenditure price index, the Federal Reserve’s preferred inflation measure, in November jumped 5.7% from a year earlier, the bureau said, the fastest pace since 1982. While disposable personal income increased 0.4% from October, after accounting for inflation it actually fell 0.2%.

Economists generally agree that consumer spending—which rose 0.6% in November from October—will continue to grow next year, buoyed by enormous pent-up savings from the pandemic. Even so, Grant Thornton Chief Economist Diane Swonk warned in a report that “we are rapidly draining that savings,” with the lowest-income households expected to run out of the savings they’d built up a year or so ago.

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Article Sources

  1. Bureau of Economic Analysis. “Personal Income and Outlays, November 2021.” Accessed Dec. 23, 2021.

  2. Federal Reserve Economic Data. “Personal Savings Rate.” Accessed Dec. 23, 2021.

  3. Federal Reserve Economic Data. “Personal Consumption Expenditures: Chain-type Price Index (PCEPI).” Accessed Dec. 23, 2021.

  4. Grant Thornton. “Pre-Omicron Economy: Running Hot.” Accessed Dec. 23, 2021.