Inflation has taken a meaningful bite out of consumers' ability to save. The annual US Personal Savings Rate has dropped to 4.0% of Disposable Personal Income, or about 1.7 percentage points below the average of the last 30 years (5.7%).
While lower savings rates typically raise concerns about the consumer’s ability to sustain their spending, the consumer picture is nuanced. Many households still have access to credit and maintain their level of spending by borrowing. Further, some consumer groups are experiencing positive wealth effects of high home prices and strong stock valuations. Declining savings rates alone do not necessarily signal an immediate pullback in consumer activity.
But can consumers continue to leverage their balance sheets? Current measures of liquidity and credit availability suggest there is still capacity for additional borrowing, allowing spending to remain supported even as savings rates have declined. In the first quarter of 2026, US Consumer Debt Service Payments averaged only 5.3% of Disposable Personal Income, slightly below the long-term average, and well below levels seen in the 2000s.
Bifurcated Consumer Base
Despite consumer debt levels, the consumer landscape is becoming increasingly bifurcated. Aggregate data can mask the growing divergence between financially resilient households and those facing mounting financial stress. On one side of the ledger, a healthy share of consumers continue to manage debt effectively.
This divergence highlights an important theme for the remainder of the decade: the consumer sector should not be viewed as a single, homogenous group. Higher-income and financially secure households possess significant spending power, while lower-income and more leveraged consumers are increasingly feeling the strain of elevated costs and higher interest rates.
Looking ahead, the consumer's ability to sustain economic growth will depend not only on aggregate credit availability, but also on how this growing split evolves. If financially stronger households continue spending while more vulnerable consumers become increasingly leveraged, overall consumption can remain resilient. However, the widening gap suggests that pockets of weakness may emerge well before broad consumer spending data begins to deteriorate. It is increasingly important for firms to assess their exposure to financially vulnerable consumers, accounting for variations in consumer health at regional and state levels, as well as at the industry level. If you need help with this, feel free to reach out to us or delve deeper into this topic and more through our exclusive webinars.