GDP Data Shows Disposable Income Growth Slowing as Consumers Seek to Pad Savings

The latest data from the U.S. Department of Commerce show that consumer spending helped push gross domestic product (GDP) past expectations.

But the growth in disposable income appears to be slowing as those same consumers look to boost their savings and as they grapple with the ever-mounting costs of their debt obligations.

GDP growth came in at 2.4% for the second quarter, better than the consensus expectations for a 2% gain.

Overall consumer spending was up 2.6% at a seasonally adjusted annual rate, as spending on goods was up 0.4% in the quarter, and up 2.1% on services.

Spending ramped up for recreational goods and vehicles, up $22 billion in the quarter, while spending on clothing and footwear was down by about $7.6 billion quarter to quarter. Consumer spending is decelerating, as the 2.6% rate compares with a 4.1% annualized rate as measured in the first quarter.

As to disposable income, the data showed that disposable personal income increased $248.2 billion, or 5.2%, in the second quarter, compared with an increase of $587.9 billion, or 12.9%, in the first quarter. Personal outlays — which include interest payments — grew by nearly $20 billion. Personal saving was $869.5 billion in the second quarter, compared with $840.9 billion in the first quarter. The personal saving rate — personal saving as a percentage of disposable personal income — was 4.4% in the second quarter, compared with 4.3% in the first quarter.

The read across, then, is that the slowing growth in spending in key categories such as apparel (and perhaps retail in general) is translating to a bit more in savings. The question remains as to how that will impact the holiday shopping season.

Some Positive Spending Momentum

The data showed that in many cases, depending on where you look across the demographic spectrum, savings are indeed seeing some positive torque.

Millennials have increased their savings, where as recently as this past spring, they reported an average savings of $11,000, compared to $7,300 in March 2022. Elsewhere, of the non-paycheck-to-paycheck consumers, at 40% of the population, savings have grown year over year to $21,000 versus around $17,400 a few years ago.

Most consumers — 85% of all consumers PYMNTS surveyed — have been fine-tuning how and where they spend at retailers, in some cases reducing the quantity of what they are buying, in other cases trading down to less expensive merchants. Often, they are using some combination thereof.