The personal saving rate among Americans has fallen to its lowest level in nearly three years, dropping to 2.6 percent in April, according to new data from the Commerce Department. That is down sharply from 5.5 percent a year earlier and marks the first time the rate has dipped below 3 percent since June 2022.
Economists point to rising energy costs as a primary culprit. Average gasoline prices surged above $4.20 a gallon amid the ongoing war with Iran, driving up spending on fuel and other energy goods. The spike has helped push overall inflation to 3.8 percent, and for the first time since 2023, consumer prices are rising faster than wages.
Federal Reserve Governor Lisa Cook acknowledged the trend in a speech Wednesday, warning that "inflation is clearly moving in the wrong direction." However, she suggested the recent price increases may be temporary, driven by shocks that should, "in theory, be temporary and short-lived."
The 2.6 percent savings rate is among the lowest recorded in the past two decades, according to Navy Federal Credit Union Chief Economist Heather Long. "It underscores how squeezed Americans are right now with higher prices and incomes not keeping up," she wrote on social media. The only other period in the last 65 years when the rate hovered below 3 percent was in the lead-up to the 2008 financial crisis.
Before the pandemic, Americans were saving at roughly double the current rate. The decline is forcing many to lean on credit to cover daily expenses. A recent NerdWallet survey found that while 76 percent of Americans are confident they can pay all their bills on time this month, 37 percent said they will need to rely on credit to cover at least some costs.
Consumer spending rose 0.5 percent in April from March, but much of that increase was driven by higher prices rather than increased consumption. Inflation-adjusted spending inched up just 0.1 percent, signaling that households are cutting back on discretionary purchases.
The Trump administration has argued that the financial strain is temporary and necessary to prevent Iran from acquiring a nuclear weapon. But that message is not resonating with the public. A Reuters/Ipsos poll last week showed only 35 percent of Americans approve of Trump's job performance, just above the 34 percent low point of his presidency recorded last month. Critics point to the administration's own admission that it does not prioritize Americans' finances in Iran nuclear talks as evidence of misplaced priorities.
The savings rate decline comes as state and local leaders explore ways to shield residents from energy price spikes linked to the Iran conflict. Meanwhile, the broader economic picture remains fragile, with many households struggling to keep pace with rising costs.
