Americans are putting away less money than at almost any point on record, and the cushion that has kept household spending going is nearly flat.

The plain version is this. For every dollar of take-home pay in June, the average American household set aside about three cents and spent the other ninety-seven. That works out to roughly one dollar saved out of every thirty-seven earned. The Bureau of Economic Analysis put the personal saving rate at 2.7 percent in June, its most recent reading, with total personal saving at $646.1 billion.

To see how thin that is, compare it to the long run. Since 1959, Americans have saved an average of 8.4 percent of their disposable income — closer to eight cents on the dollar. The all-time low in the series is 1.4 percent, hit in July 2005. The current rate sits barely more than a percentage point above it. At the other extreme, during the shutdown month of April 2020, the rate spiked to 31.8 percent, when checks were arriving and there was nowhere to spend them.

The direction over this year tells the story. The rate was 2.6 percent in April, ticked up to 3.0 percent in May, then slid back to 2.7 percent in June. It has been stuck in that narrow, historically low band all spring and summer.

What is driving it is simple arithmetic. In June, personal income rose 0.2 percent and disposable income rose the same 0.2 percent, while consumer spending rose 0.3 percent. When the spending line grows faster than the income line, month after month, the difference has to come out of savings. That is exactly what has been happening.

The squeeze is not coming from Americans buying more. It is coming from the same basket costing more. The war that began in late February and the resulting disruption at the Strait of Hormuz pushed energy prices sharply higher, and gasoline was among the single largest drivers of increased household spending this spring. Groceries, utilities and insurance have all followed. Households are writing bigger checks for the same amount of goods.

That leaves the credit card as the shock absorber. Total card balances reached $1.252 trillion in the first quarter of this year, according to the Federal Reserve Bank of New York — up 63 percent from the pandemic-era low of $770 billion in early 2021. Average interest rates on new card offers stand near 23.79 percent, meaning a household carrying a balance is paying roughly a fifth of what it owes every year just in interest. Savings down and card balances up is the same squeeze measured two different ways.

Why this matters beyond the household budget: consumer spending is about two-thirds of the American economy. Retailers, restaurants, airlines, homebuilders and auto dealers are all downstream of it. A saving rate this low means there is very little reserve left to draw on. If a household loses hours, faces a car repair or gets hit with an insurance renewal, the money to absorb it is not sitting in an account — it goes on credit or the spending gets cut. That is why economists watch this number as a warning light for the quarter ahead rather than a report card on the one just finished.

There is a counterargument worth stating. A low saving rate is not automatically a sign of distress. During the 2008 crisis the rate climbed above 8 percent as frightened households hoarded cash, and that was a bad sign, not a good one. A low rate can reflect confidence that income will keep coming. The problem this time is that it is pairing with falling real incomes and rising card debt, which is the unhealthy version of the same reading.

So what actually fixes it. Three things, in order of how quickly they could work. Energy prices coming down would do the most and the fastest, because fuel costs feed directly into groceries, freight and utilities — which is why any easing of the Hormuz disruption shows up in household budgets within weeks. Second, wage growth needs to run ahead of prices again rather than behind them, which restores the gap between income and spending that savings come from. Third, at the household level, the highest-return move available right now is retiring card balances carrying rates near 24 percent, because no savings account pays anything close to what that debt costs.

The next reading arrives Aug. 26, when the Bureau of Economic Analysis releases July personal income and outlays. That figure will show whether the summer squeeze eased or whether the saving rate is still grinding toward a level Americans have not seen since 2005.

JBizNews Desk | New York

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