US spending has grown twice as fast as income in a year as the saving rate fell to 4.1%

Inflation-adjusted spending by US households grew about twice as fast as inflation-adjusted disposable income over the 12 months to August, and the personal saving rate fell to 4.1%, according to the Bureau of Economic Analysis (BEA) and series compiled by the St. Louis Fed. Two BEA reports due on October 29 will show whether the gap widened in September and the third quarter.

What the August report showed

The BEA said personal income increased $66.6 billion, or 0.2%, in August. Disposable personal income, which is income less personal current taxes, increased $68.6 billion, or 0.3%. Personal consumption expenditures (PCE), the BEA's measure of household spending, increased $190.8 billion, or 0.9%, with $114.1 billion of the rise in goods and $76.7 billion in services.

Prices took part of that. The PCE price index rose 0.3% in August, and real PCE, which removes price changes, rose 0.6%. Real disposable income was unchanged, at 0.0%, after a 0.3% rise in July. The BEA put personal saving at $990.2 billion in August, and the saving rate, which is saving as a percentage of disposable income, at 4.1%. The release attributes the rise in income primarily to compensation and government social benefits.

A saving rate that has fallen since January

Monthly saving-rate figures compiled by the St. Louis Fed show the rate at 5.2% in August 2025 and 5.0% in December. It rose to 5.6% in January 2026, then fell to 5.3% in February, 5.1% in March and 4.4% in each of April, May and June. It was 4.6% in July and 4.1% in August.

Measured against those readings, August's rate is 1.1 percentage points below a year earlier, 1.5 points below January and 0.5 point below July (computed). It is also the lowest of the 17 monthly readings from April 2025 through August 2026 (computed). The figures include the BEA's annual update, which revised personal income and outlays back to January 2021, so they can differ from the numbers first published for earlier months.

Spending has outrun income in real terms

The same data source gives levels for real disposable income and real PCE, both in chained 2017 dollars at seasonally adjusted annual rates. Real disposable income was $18,410.5 billion in August 2026, compared with $18,174.0 billion in August 2025, a rise of 1.3% (computed). Real PCE was $16,955.3 billion, compared with $16,529.7 billion, a rise of 2.6% (computed). Spending therefore grew about twice as fast as income over the year (a ratio of 1.98, computed).

The gap is also visible since January. Real disposable income rose 0.5% from $18,322.5 billion in January, while real PCE rose 2.2% from $16,596.8 billion (both computed). Because the saving rate is what remains of income after spending, a faster rise in spending than in income is the arithmetic behind the lower rate. The data do not show how households financed the difference, or whether the pattern reflects choice or necessity.

Growth in the national accounts

The BEA's third estimate for the second quarter, released on September 30, put real GDP growth at an annual rate of 2.2%, compared with 2.5% in the first quarter, which was also revised. The estimate was revised up 0.7 percentage point from the second estimate, "primarily reflecting upward revisions to investment, consumer spending, and government spending." The advance and second estimates had both shown 1.5%.

The quarterly series for real GDP shows growth of 4.0% in the second quarter of 2025, 3.9% in the third, 0.2% in the fourth, 2.5% in the first quarter of 2026 and 2.2% in the second. Real consumer spending grew at annual rates of 2.1%, 3.7%, 1.9%, 0.7% and 3.8% in the same quarters. Spending therefore grew faster than GDP in the second quarter of 2026, when it rose 3.8% against 2.2% for GDP. US quarterly growth rates are annualized, so they cannot be compared directly with the 12-month changes above.

Other measures in the same report pointed in the same direction as spending. Real final sales to private domestic purchasers, the sum of consumer spending and gross private fixed investment, increased 4.6% in the second quarter. Real gross domestic income, which measures the same economy from the income side, increased 2.6%. The BEA said the contributors to GDP growth in the quarter were consumer spending, investment and exports, while imports, which are subtracted, increased.

Prices in the accounts

The PCE price index rose 3.4% from a year earlier in August, and 3.0% excluding food and energy, according to the BEA. The same index rose at a 5.0% annual rate in the second quarter, revised down 0.3 percentage point, and 3.3% excluding food and energy. Consumer prices and pay for September were set side by side in an earlier FinanceInTime analysis.

What Thursday's releases will measure

The BEA's release schedule lists two reports for October 29 at 8:30 a.m. ET: the advance estimate of third-quarter GDP and personal income and outlays for September. The second-quarter history shows how much an estimate can move: real growth was 1.5% in the advance estimate and 2.2% in the third.

The Federal Reserve's policy committee meets on October 27-28, according to the Fed's meeting calendar, so the data arrive after the meeting ends.

If September spending again rose faster than disposable income, the saving rate would fall below 4.1%; if income rose faster, it would rise. That is arithmetic, not a forecast, and the August figures can also be revised.

What the data do not show

The BEA reports what households earned, spent and saved, not why. The accounts do not say whether the fall in the saving rate reflects confidence, higher prices for necessities, drawing down earlier savings or borrowing. They also do not show how the pattern differs between lower- and higher-income households, because the figures are totals for the whole sector.