US Savings Rate Hits 3-Year Low as Inflation Squeezes Wallets

A new government report shows that American households faced increasing financial pressure in October and November as rising prices outpaced income growth, pushing the personal savings rate to its lowest level since 2022.

The data, released Thursday by the Bureau of Economic Analysis, highlights the ongoing challenge of inflation, which continues to run well above the Federal Reserve's target.

Inflation Persists Above Fed's 2% Goal

Consumer prices, measured by the Personal Consumption Expenditures (PCE) price index, climbed 2.8% in the year through November. This marks an acceleration from the 2.7% annual rate recorded in October.

The "core" PCE index, which excludes volatile food and energy prices, also registered a 2.8% annual increase in both October and November, holding steady from September's levels. The Federal Reserve closely monitors core PCE as its primary benchmark for inflation.

Household Savings Depleted Amid Rising Costs

While prices rose, household finances struggled to keep pace. After adjusting for inflation, disposable income fell by 0.1% in October before recovering with a slight 0.1% gain in November.

This squeeze on income forced many to dip into their savings. The personal savings rate fell to just 3.5% in November, a significant drop from 4% in September and its lowest point in three years. The savings rate has been on a downward trend every month since April, when President Donald Trump announced broad tariffs that created economic uncertainty and contributed to higher prices for households.

Shutdown May Have Skewed Economic Data

The release of this report was delayed by about a month due to the federal government shutdown in October and November. Economists caution that this disruption could have distorted the data, as it placed additional financial strain on government workers and may have affected survey collection.

"Consumers are still spending, but they dipped heavily into savings during the shutdown," noted Heather Long, an economist at Navy Federal Credit Union. "Incomes need to continue to grow in 2026 to fuel a healthy economy. It's likely the data was skewed by the shutdown, but this is worth watching closely."

Implications for the Economy and Fed Policy

The report adds to growing evidence that household budgets, particularly for middle and lower-income families, are under significant stress. If consumers are forced to cut back, it could weaken consumer spending, which serves as the main engine of the U.S. economy.

Figure 1: The Personal Consumption Expenditures (PCE) index is the Federal Reserve's preferred measure for tracking inflation, reflecting broad spending on goods and services by U.S. households.

Because of the potential data distortions from the shutdown, the elevated core inflation figures may carry less weight in the Federal Reserve's upcoming interest rate decisions. Central bank officials are currently debating whether to maintain higher interest rates to combat persistent inflation or to lower them to support a slowing job market.

The fed funds rate dictates borrowing costs across the economy, and keeping it elevated is a key tool for discouraging spending and taming price increases. Despite the inflation data, the Federal Reserve is widely expected to hold interest rates steady at its policy meeting next week.