February 20, 2026

Personal  income rose 0.4% in December after climbing 0.1% in November .  In the past year personal income has climbed 4.0%.  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 December after gaining 0.5% in November.  In the past year wages have risen 3.9%.  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 — was unchanged in December after having risen 0.1% in November.    In the past year it has risen by 0.9%.  Like all other measures of income it is being reduced by the dropoff in job creation in 2025.  Prior to the recession real disposable income was growing on average at 2.5%.

Personal consumption expenditures rose 0.4% in December after climbing 0.4% in Novemer.   In the past year nominal spending has risen 4.7% and it seems to be fairly steady..

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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 roe 0.1% in December after climbing 0.2% in November.     It turns out that spending on goods declined 0.5% in December.  Spending on goods has slowed from 5.0% at the end of 2024 to a decline of 0.1%% in December of this year.  This is where the impact of tariffs would be most apparent.  Spending on services rose 0.3% in December.  It has risen 2.6% in the past year and has slowed only slightly in the past year.

In the pst year real disposable income has risen 0.9% while real consumer spending has risen 1.7%.  To make that happen consumers have done a couple of things.  First, they havereduced their savings rate,   They have not significantly increased their credit card borrowing.  And middle and upper income consumers have been relying on the increase in their net worth, in particular the dramtic increase in stock prices in the past year.  For what it is worth we expect that to continue in 2026 and anticipate an increase in consumer spending this year of 1.5%.

The savings rate declined .1% in December to 3.6% afer having been unchanged in November..  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 3.6% 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 onsumers 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 5.7% which is roughly the same pace as consumers were borrowing prior to the 2020 reecession.  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 ipart of last year 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 oare 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 spending.

Steady (but modest)  job gains and significant 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 3.3% in the first quarter and 3.0% growth in 2026.

Stephen Slifer

NumberNomics

Charleston, SC