U.S. personal savings rate falls as inflation outpaces wages

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US savings rate falls

Highlights

U.S. personal savings rate fell to 2.6% in April from 3.2% in March and 5.8% a year earlier, reaching its lowest since June 2022.
April consumer prices rose 3.8% year-over-year versus 3.6% wage growth, marking the fastest inflation pace since May 2023 and eroding purchasing power.
NerdWallet survey shows 37% of Americans, including 35% earning at least $100,000, need to borrow for monthly expenses, while 401(k) loan usage increased to 19.2% in Q1.

April data shows deeper household strain

As reported by the Bureau of Economic Analysis, the U.S. personal savings rate stands at 2.6% in April, down from 3.2% in March and 5.8% a year earlier. The rate, which measures the share of after-tax income left after expenses, reaches its lowest level since June 2022, when it touched 2.2% during a period of record-high inflation.

Heather Long, chief economist at Navy Federal Credit Union, says the April figure is unusually weak by historical standards. She says the drop comes as inflation again moves ahead of wage growth, leaving households with less capacity to build cash buffers.

Data from the Bureau of Labor Statistics shows consumer prices rise 3.8% in April from a year earlier, the fastest pace since May 2023. Average hourly earnings increase 3.6% over the same period, indicating paychecks are no longer keeping up with inflation.

Credit use and retirement withdrawals increase

Pressure on household finances is also pushing more consumers to borrow for routine expenses. A new NerdWallet survey finds 37% of Americans say they will need to use a credit card, Buy Now Pay Later service or another form of loan to cover at least part of their expenses this month, including 35% of households earning at least $100,000 annually.

The survey covers 2,072 U.S. adults in early May. Long says many consumers still have enough cash for now, but she expects tighter budgets later this year as tax refunds are used up and most households see no further income boost.

Separate data released by Fidelity on Thursday shows more workers are also drawing on retirement savings. The share of workers with an outstanding 401(k) loan rises to 19.2% in the first quarter from 18.8% a year earlier, while the shares taking new loans or hardship withdrawals also increase.

In our earlier coverage of April’s inflation rebound and the resulting shift in the Federal Reserve debate, we highlighted St. Louis Fed President Alberto Musalem’s warning that rates may need to rise if disinflation fails to reappear in the next one to two quarters. We also noted that stronger PCE inflation—helped by energy-driven pressures—has complicated the case for near-term cuts and pushed markets to reassess the path of U.S. interest rates.

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