July 30, 2026

Personal  income rose 0.2% in in June after gaining 0.7% in May.   In the past year personal income has climbed 3.7%.  Slower jobs growth caused a much slower rate of growth in income in 2025.  But in the first half of this year jobs growth has accelerated which has caused personal income to climb faster and the year over year growth rate has quickened from a low of 2.6% to 3.7%.

The growth in income is being fueled by wages which rose 0.2% in June after climbing 0.4% in May..  In the past year wages have risen 4.0%.  Like overall income, the slower growth in wages reflects reduced job creation during most of last year has since begun to climb more quickly.

Real disposable income — what is left after paying taxes and adjusted for inflation — rose 0.3% in June after rising 0.2% in May.    In the past year it has risen 0.5%  It was 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%.  But looking ahead job creation has quickened and, at the same time, inflation should rise more slowly.  Look for real disposable income to grow more quickly in the second half of this year.

Personal consumption expenditures rose 0.3% in June after increasing 0.9% in May.   In the past year nominal spending has risen 6.3%.

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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 rose 0.4% in both May and June.  In the past year it has risen 2.5%.   It turns out that real spending on goods has risen 3.0% in the past year.  Spending on goods slowed from 5.0% at the end of 2024 to 3.0% currently  This is where the impact of tariffs would be most apparent.  Real spending on services has risen 2.3% in the past year and has been fairly steady in the past year.

In the past year real disposable income has risen 0.5% while real consumer spending has risen 2.5%.  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 1,8%.

The savings rate slowed by 0.1 in June to 2.7% after having slowed by 0.2% in May..  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 2.7% 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.  Following growth of 1.5% in the second quarter we look for GDP growth of 3.5% in the third quarter and 2.3% growth in 2026.

Stephen Slifer

NumberNomics

Charleston, SC