News & Insights

Key Takeaways

• Consumers are saving less, spending more and leaning on tax refunds more than rising wages.
• The wealth effect is boosting spending for owners of real estate and, most recently, stocks.
• Rising wages continue to support increased consumer spending, albeit at a lower rate than the wealth effect.

Savings Rate Falls as Incomes and Asset Values Rise

While headline consumer spending continues rising at a strong pace, bolstering economic growth, American consumers are drawing down savings to accommodate the gap between income growth and consumption. As spending has outpaced income, the personal savings rate has fallen sharply to one of its lowest levels in history. However, consumer balance sheets remain in good condition as they have reaped the benefit of the equity markets.

With the climb in energy and fuel prices driven by geopolitical tensions in the Middle East, core inflation has remained elevated, leaving less room in discretionary budgets. Some of the high spending lately may also be attributed to the World Cup, another sign that spending growth may revert toward income growth soon. Tax refunds have been an additional driver of spending for households, running 18% higher than last year. However, the benefit was unevenly distributed, with the largest refund increases relative to last year going to higher-income earners even when measured on a percentage basis. A large part of the benefit for higher-income earners was due overwhelmingly to the increase in the state and local tax deduction for residents in high tax states.

The upper end of income distribution continues to carry a disproportionate and growing share of total consumption, which is tied closely to the wealth effect. As equity markets advance, household net worth among upper- and middle-income quintiles keeps climbing. However, lower earners have not been left behind in wealth generation. According to a Citadel analysis, the bottom 50% have experienced the largest relative gains in their wealth due to rising house prices and increased exposure to equities.

Meanwhile, the wealthiest part of the population has experienced some of the greatest growth in assets due to the duration of the bull market in equities. The lower income sectors have been squeezed by the rising cost of food and gasoline. Over the longer term, the lowest 50% of the income cohort has increased their relative wealth with the increasing value of real estate and rising participation in the equity markets. The least-affected in the shift of relative wealth have been the middle-income tiers, maintaining their position.

According to Bank of America data, lower- and middle-income earners have experienced accelerated income growth over the last couple of months, while higher-income earners’ growth has slowed. This puts income growth across all income tiers on equal footing. It could be that lower and middle-income workers have adjusted their tax withholding, boosting after-tax income. With the growth of the economy, these earners may be getting higher-paying jobs at a faster rate than high-income earners. Overall, the stable job market and rising real wages project a healthy consumer spending outlook.

U.S. Personal Consumption Compared with Income

Source: Bloomberg

U.S. Personal Savings Rate

Source: Bloomberg

Household Wealth Growth by Percentile Income Group

Source: Citadel Securities

About Frost Investment Advisors, LLC

Frost Investment Advisors, LLC, a wholly owned subsidiary of Frost Bank, one of the oldest and largest Texas-based banking organizations, offers a family of mutual funds to institutional and retail investors. The firm has offered institutional and retail shares since 2008.

Frost Investment Advisors' (FIA) family of funds provides clients with diversification by offering separate funds for equity and fixed income strategies. Registered with the SEC in January 2008, FIA manages more than $5.0 billion in mutual fund assets and provides investment advisory services to institutional and high-net-worth clients, Frost Bank, and Frost Investment Advisors’ affiliates. As of April 30, 2026, the firm has $5.4 billion in assets under management, including the mutual fund assets referenced above. Mutual fund investing involves risk, including possible loss of principal. Current and future portfolio holdings are subject to risks as well.

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This commentary is as of Aug. 20, 2026, for informational purposes only and is not investment advice, a solicitation, an offer to buy or sell, or a recommendation of any security to any person. Managers’ opinions, beliefs and/or thoughts are as of the date given and are subject to change without notice. The information presented in this commentary was obtained from sources and data considered to be reliable, but its accuracy and completeness is not guaranteed. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not indicators or guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification strategies do not ensure a profit and cannot protect against losses in a declining market. All indices are unmanaged, and investors cannot invest directly into an index. You should not assume that an investment in the securities or investment strategies identified was or will be profitable.

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