America's Savings Rate Slides To 2.9%: 'Spending Drops Or Incomes Go Up,' Warns Expert

Alarm bells are ringing for some Americans, as recently issued data finds that the U.S. personal savings rate has plummeted to just 2.9%, a level seen only twice since 2007. 

Don't Miss:

• Founder of Personal Capital and ex-CEO of PayPal re-engineers traditional banking with this new high-yield account — start saving better today.

The concerning statistic comes from Reventure Consulting CEO Nick Gerli, who said in a recent tweet thread that American consumers may be running on fumes, potentially foreshadowing tough times ahead for the economy.

“Either spending drops or incomes go up,” Gerli warned. “The current situation is not sustainable.”

Trending: The average American couple has saved this much money for retirement —How do you compare?

Gerli said that in the decades preceding the COVID-19 pandemic, U.S. households typically saved about 10% of their disposable income. But over the past year, that savings buffer has steadily eroded, with July’s paltry 2.9% rate marking a sharp reversal from the heightened pandemic-era savings.

The crunch on household budgets comes as stubborn inflation continues to outpace wage growth, leaving many Americans feeling the squeeze. Data from the Commerce Department showed personal income rising just 0.3% in July, while spending climbed 0.5% – a clear mismatch.

Some experts argue the savings rate may be understated, as the government’s data fails to fully capture income earned by undocumented immigrants, a growing workforce segment. But regardless, the broader trend points to increasingly fragile consumer finances.

See Also: Are you rich? Here’s what Americans think you need to be considered wealthy.

"The BEA could be undercounting income earned by recent immigrants, whose economic activity is harder to measure than workers who have been in the U.S. longer,” Bill Adams, chief economist at Comerica Bank, told Reuters. “That could mean the saving rate is higher than is currently reported, and would be revised higher when more accurate employment and earnings data become available.”

Still, according to Gerli, the current parallels to the lead-up to the 2008 financial crisis are striking. Then, as now, a housing bubble, stock market euphoria, and rock-bottom savings rates masked underlying vulnerabilities.

When the reckoning came, consumer spending plummeted, and the U.S. spiraled into the worst recession in 80 years.

Trending: Can you guess how many Americans successfully retire with $1,000,000 saved? The percentage may shock you.

While the current economic landscape has some key differences, the Federal Reserve – expected to begin cutting interest rates this month – will no doubt be keeping a watchful eye on the deteriorating savings picture.

"Doesn’t mean that history will repeat itself," Gerli said. "The economy is stronger in some ways now than it was back then. Consumer balance sheets are better. Mortgages are more solid. But the fundamental indicators related to asset prices, savings, and credit card delinquencies are starting to appear strikingly similar."

It may be time for average Americans to tighten their belts and rebuild those depleted emergency funds.

Read Next:

• Miami is expected to take New York's place as the U.S. Financial Capital. Here's how you can invest in the city before that happens.
• Elon Musk and Jeff Bezos are bullish on one city that could dethrone New York and become the new financial capital of the US. Investing in its booming real estate market has never been more accessible.