Americans have a cushion problem.
The savings they piled up during the pandemic are mostly gone, and now inflation just hit a three-year high.
For years, households had room to absorb rising prices. That room is gone.
Stimulus checks, pandemic savings, and a hot job market gave families a buffer big enough to eat higher grocery bills and shrug off pricier gas.
Now the buffer is gone.
The personal savings rate - the share of income people set aside each month - dropped to 2.6% in April, the lowest level since June 2022.
More households are tapping savings to cover the basics like rent, food, and fuel.
Then inflation flared back up, with the Fed's preferred PCE gauge rising 3.8% in April - its fastest pace in three years.
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Consumer spending makes up about two-thirds of the U.S. economy, so when savings dry up and prices keep climbing, something has to give.
Real spending - adjusted for inflation - rose just 0.1% in April, a sign households are running harder just to stand still.
Much of that spending growth went to the basics: gas, energy, utilities, housing, and food accounted for roughly half. [NEEDS MANUAL VERIFICATION: claims about retailers and credit card companies flagging late payments and trade-down behavior are not in the source article.]
That kind of switch usually shows up before a broader slowdown does.
The Fed's next move depends on which way this breaks. If inflation sticks, rate cuts get pushed further out; if consumers crack first, the slowdown shows up in earnings before the Fed has time to react.
Either way, the buffer is gone.
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