When the US releases its PCE inflation figures, most attention goes on prices. But the same report contains another number that tells you a great deal about the economy: the personal saving rate. It shows how much of their income Americans are putting aside, and therefore how much room they have to keep spending.
What the personal saving rate is
The personal saving rate is the share of disposable income that households save rather than spend. Disposable income is what people have left after taxes. If households earn $100 after taxes and spend $95, the saving rate is 5 per cent. It is published monthly by the US Bureau of Economic Analysis in the Personal Income and Outlays report, the same release that contains PCE inflation.
Why it matters
Consumer spending makes up roughly two-thirds of the US economy, so how households balance spending and saving matters for growth, company profits and interest rates. The saving rate gives clues about how sustainable spending is.
A falling saving rate means people are spending a larger share of their income. In the short term that supports growth, but if it falls very low, it suggests households are stretching themselves and may have less cushion if the economy weakens. A rising saving rate can mean people are becoming more cautious, which can slow spending even if incomes are holding up.
For the Federal Reserve, strong spending funded by falling savings can keep inflation pressure alive, which may mean rates stay higher for longer.
A simple example
Imagine incomes rise 0.3 per cent in a month but spending rises 0.6 per cent. Households are spending faster than they are earning, so the saving rate falls. Retailers and the economy benefit for now, but if that pattern continues for months, the saving rate drifts towards historically low levels, and economists start to question how long consumers can keep it up.
How traders use it
Traders look at the saving rate alongside personal income and spending, which come in the same report. Strong spending with healthy income growth is a solid backdrop. Strong spending with weak income and a falling saving rate is more fragile. They also compare it with the pre-pandemic average, around 7 per cent in the late 2010s, to judge whether households look stretched or comfortable.
The number rarely moves markets on its own on release day, because inflation figures take the headlines. Its value is in the trend: it helps traders judge whether consumer strength is likely to last, which feeds into views on the dollar, Treasury yields and retail shares.
Common mistakes
One mistake is reading the saving rate in isolation without looking at income growth. Another is ignoring revisions, as the figures are often revised significantly in later months. A third is assuming a low saving rate means an immediate slowdown; households can run low savings for some time if jobs remain plentiful.
The bottom line
The personal saving rate tells you how much of their income US households are keeping back. It is a useful guide to whether consumer spending can last and how much pressure the Fed faces. If you want to test how well you connect economic data to markets, try the free Samuel & Co Trading Trader Assessment.
