Households slow their spending and dip into savings as inflation heats up

Article originally posted on CoStar on June 3, 2026

Americans continued to spend in April, though the pace of that growth slowed as consumers faced multiple headwinds.

Inflation-adjusted income growth turned negative for the second consecutive month, gasoline prices remained elevated near four-year highs, and inflation across other categories also ticked up.

Increasingly, consumers are dipping into savings and relying on accumulated household wealth to maintain spending power. That’s a fragile balance likely to intensify the reach of a K-shaped economy, where wealthier consumers maintain spending while households depending on their wages lean on credit cards to fund their purchases.

Inflation-adjusted consumer spending increased 0.1% over the month, according to recently released data for April from the U.S. Bureau of Economic Analysis, down from March’s 0.3% monthly increase but still positive on a year-over-year basis. At the same time, inflation-adjusted disposable income fell 0.5%, the third consecutive month of declining real income. On a year-over-year basis, disposable personal income fell 1.1%, the steepest drop since November 2022.

April was the 24th consecutive month in which year-over-year real spending equaled or outpaced real discretionary income growth. Consumers increasingly dipped into savings to maintain that spending, with the personal savings rate falling to 2.6% in April. That was the lowest savings rate since June 2022.

Higher gasoline prices, which have risen by more than 50% since the beginning of the military conflict in the Middle East, were a key driver of spiking inflation. Overall inflation rose 3.8% year over year, up from 2.9% in February.

Not adjusted for inflation, spending on gasoline and other energy products rose 5.7% in April in addition to the initial price shock in March, during which gasoline spending grew 19% monthly. The spending increase in March was entirely due to higher prices at the pump. In fact, consumers showed signs of pulling back as inflation-adjusted spending on gasoline fell in March by 1.6%. It ticked up slightly by 0.2% monthly in April.

Consumers facing higher gasoline prices have limited options to cut back. Still, inflation-adjusted spending on gasoline fell 1.7% on an annual basis, one of only three broad categories, along with more discretionary restaurant and hotel spending, down 0.3%, and motor vehicles and parts, at negative 4.2%, to see negative year-over-year real spending.

More recently, in April, real spending fell most sharply in goods-related categories, such as motor vehicles and parts, 1.1% month over month, clothing and footwear, down 0.9%, other durable goods, negative 0.6%, and recreational goods and vehicles, down 0.5%.

While the pullback in goods spending could reflect uncertainty about making big-ticket purchases, spending last spring on goods items amid tariff uncertainty led many consumers to front-load purchases to avoid paying import tariffs later in the year. Year-over-year real spending in these categories, except for motor vehicles, remained positive.

Moreover, service-oriented discretionary spending categories continued to grow. Recreation services, for example, led all categories in inflation-adjusted spending increases, both monthly, up 1.1%, and annually, up 3.9%. And though restaurant and hotel spending was down year over year, consumers’ real spending in restaurants rose by 0.2% in April.

Longer-term growth in household wealth has been a pillar of spending resilience. During the most recent comparable price shock in 2022, excess savings from the COVID-era stimulus helped sustain spending. Though those excess savings have long since burned off, asset-driven household wealth for some has continued to outpace income growth, especially important for sustaining higher-income spending.

Since January 2020, cumulative personal discretionary income has risen by 41.8%, outpacing cumulative inflation of 25.3%, as measured by total goods and services spending tracked by the Personal Consumption Expenditures Index. At the same time, though, household net worth increased by 70.2% from January 2020 through the fourth quarter of 2025, driven by gains in asset values, particularly in real estate and equities. More than 68% of household net worth is held by the wealthiest 10% of households, according to the Federal Reserve.

So far, the American consumer appears to be keeping up, but segments are struggling.

Recent credit data from the Federal Reserve Bank of New York shows household debt reaching $18.8 trillion in the first quarter, a record high. This comes as lower-income households that depend on wage income and have fewer assets are increasingly turning to credit cards to cover their bills, building balances that can be difficult to pay off.

Credit card balances that are 90 days or more delinquent now account for about 13% of outstanding balances, a share not seen since the Great Recession, suggesting an emergent risk to continued growth.