May 28 2026

Personal  income was unchanged in April after having risen 0.5% in March.   In the past year personal income has climbed 2.5%.  Slower jobs growth has caused a much slower rate of growth in income since the beginning of last year.

The growth in income is being fueled by wages which rose 0.2% in April after climbing 0.3% in March.  In the past year wages have risen 3.6%.  Like overall income, the slower growth in wages reflects reduced job creation.

Real disposable income — what is left after paying taxes and adjusted for inflation — fell 0.5% in  April after having declined 0.2% in March.    In the past year it has declined by 1.1%.  It is being reduced by the drop-off in job creation as well as the increase in the inflation rate.  Prior to the recession real disposable income was growing on average at 2.5%.

Personal consumption expenditures rose 0.5% in April after increasing 1.0% in March.   In the past year nominal spending has risen 5.9% and it seems quite steady..

.

What we are really interested in is “real” or inflation-adjusted spending.  That is what goes into the GDP calculation.  After adjusting for inflation real consumption spending rose 0.1% in April after having climbed 0.3% in March. In the past year it has risen 2.1%.   It turns out that spending on goods has risen 1.2% in the past year.  Spending on goods has slowed from 5.0% at the end of 2024 to 1.2% currently  This is where the impact of tariffs would be most apparent.  Spending on services has risen 2.5% in the past year and has been fairly steady in the past year.

In the past year real disposable income has fallen 1.1% while real consumer spending has risen 2.1%.  To make that happen consumers have done a couple of things.  First, they have reduced their savings rate,   They have not significantly increased their credit card borrowing.  Middle and upper income consumers have been relying on the increase in their net worth, in particular the dramatic increase in stock prices in the past year.  For what it is worth we expect consumer spending this year to increase by 1,5%

The savings rate fell 0.6% in April to 2.6%% after having fallen 0.4% in March..  Consumers are saving less of their paycheck each month than what they have done historically.  In the 10-years prior to the 2020 recession the savings rate averaged 7.0%.  At 2.6% the savings rate is far below its historical average.  However it has been below that 7.0% level for the past couple of years and consumers seem comfortable with it.

A year or so ago consumers were rapidly running up their credit card bills.  But the rate of growth in credit card borrowing has slowed to 5.9% which is roughly the same pace as consumers were borrowing prior to the 2020 recession.  It is not excessive..

The consumer debt service ratio has been rising but it is still slightly below where it was prior to the recession.

Thus far the additional debt has not been a problem.  Delinquency rates began to climb in the early part of 2023 as student loan payments were once again required after a 3-year grace period when no payment was received on some outstanding loans.  Delinquency rates on auto loans have also risen.  But delinquency rates are roughly the same as they were prior to the recession.

Consumers are apparently dipping into some of their newfound wealth from gains in the stock market and the increased value of their home to sustain their pace of spending.

Steady (but modest)  job gains and wage growth will provide enough fuel to keep the economy growing at a moderate rate in the months to come.  We look for GDP growth of 3.0% in the second quarter and 2.4% growth in 2026.

Stephen Slifer

NumberNomics

Charleston, SC