The economy is roaring. It grew at a 3.4% annual rate in the third quarter, the fastest pace in a year. No other big rich country is growing like this. Now the other number. Look at the 12 months through September. Americans' real after-tax income rose 1%. Their real spending rose 2.5%. Savings paid the difference.
The Journal's Justin Lahart wrote this up on Monday, Nov. 2, the day before the election. Two engines drive the growth. One is the AI build-out. Business investment rose at a 12.7% real annual rate. Computing equipment ran at a 67% rate, and data-center construction at 127%. The other engine is the shopper. Consumer spending grew at a 3.8% real rate for the second quarter in a row, helped by a stock market that closed Friday, Oct. 30 up 11% for the year. A measure of private demand grew 4.9%, its best since 2021.
The boom has a shadow. Home building has flatlined, because builders compete with data centers for workers and materials. And the raise most people got has already been spent at the store. Since January 2025, average hourly earnings are up 5.5%. Consumer prices are up 5.4%. That leaves almost nothing. “Yes, the tide is rising, but it's not lifting all boats this time,” said Joe Brusuelas of RSM. People who live on paychecks feel it most. People living on business income or retirement benefits feel it less. EY-Parthenon's Gregory Daco calls the economy “robust, but it is also extremely concentrated.”
So the saving rate fell, from 5.1% to 3.8% in a year. That's what happens when spending grows faster than income. In a Journal poll last month, 62% rated the economy not so good or poor. Lahart's point is that the pace may not last if income keeps lagging. People can only run down savings for so long.
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Cash Flow, M5. A strong economy and a thin cushion can live in the same house. The national saving rate is just the sum of every kitchen table. If your pay rose 5.5% and your grocery bill rose 5.4%, you didn't get a raise. You got the same life at a higher price. Spending beyond that came out of savings, or out of the glow of a 401(k) balance that went up with an 11% market. A paper gain isn't income. It can leave as fast as it came, as October's drop in the AI stocks showed. General planning principles, not advice for anyone in particular.
Here's where it touches your plan. Take last month's take-home pay and subtract what left the account. What's left, divided by take-home, is your own saving rate. If it's near the national 3.8%, the cushion is thin. Then count how many months of spending sit in your emergency fund. Retirees on a pension or Social Security felt the squeeze less, the paper says, but the months-of-spending count still applies. Everyone else, do both before you spend a market gain. You check the spare tire before the trip, not on the shoulder. Bring your number to your next review and we'll size the reserve.