“A fundamental assumption in our forecast had been that the personal savings rate had been unsustainably low as income growth meaningfully lagged consumer spending in recent quarter,” said Nathaniel Drake, associate at Fannie Mae’s Economic and Strategic Research Group.
Personal income, adjusted for inflation, rose by 0.1% in August, according to the BEA, and real disposable income saw a similarly modest 0.1% increase. The revisions also pushed the personal saving rate up to 5.2% for the second quarter, compared to a previously reported 3.3%. However, the savings rate declined slightly to 4.8% in the latest monthly data.
“These revisions thus present some upside risk to our growth forecast through the end of 2024 and into 2025,” Drake said. “While we had previously called for slowing growth in part due to believing consumers would need to retrench to allow incomes to catch up with spending, we will be reassessing this view in our next update.”
Drake noted that inflation pressures have continued to ease, largely in line with the group’s expectations.
The Personal Consumption Expenditures (PCE) price index rose just 0.1% in August. Year over year, the PCE index grew by 2.2%, a new cycle low. Core PCE inflation, which excludes volatile food and energy prices, also increased by 0.1% but reached 2.7% annually due to base effects.