Personal Income Posts First Drop Since 2021

Data on personal income, spending and saving released Friday (June 27) from the Bureau of Economic Analysis painted a portrait of a pinched consumer.

Personal income dipped 0.4% month on month in May. That’s the first monthly decline since September 2021, ending an upward trend that peaked with a 0.8% increase in April. Disposable (after tax) personal income dipped 0.6% following a 0.8% rise in April.

As for the pressures, while wages and compensations still grew monthly at a rate of 0.4%, “real” disposable personal income, which is adjusted for inflation, dipped 0.7%. The last time real incomes decreased monthly was in July and August 2024, with very slight declines in those months. We have to go back to January 2022 to see a dip of greater magnitude, at a time when inflation was heating up beyond rates seen today.

As income declined, so too did spending. Personal consumption expenditures dropped 0.1% in nominal terms, the second decrease seen so far this year, after the 0.2% posted in January. Durable goods took the biggest hit, down 1.8%, while nondurables declined at a rate of 0.2%.

“Real” personal consumption expenditures are still up 2.2% on a yearly basis, although the trend is declining, as they rose 2.9% in April. This is worsened by the fact that real disposable incomes are performing even worse on a yearly basis (1.7% versus May 2024) and have done so for each month of 2025. Spending, then, is outpacing income growth.

To help fill that gap, the personal savings rate was 4.5% of disposable income in May, a decrease from 4.9% in April (although far from the December minimum of 3.5%). A larger share of income is needed to cope with expenses, whether recurrent or unexpected.

PYMNTS Intelligence has taken stock of the impact of those expenses, revealing in the March Paycheck-to-Paycheck Report, “The Two Money Mindsets Shaping How Consumers Manage Their Finances” that 4 in 10 consumers are classified as “planners,” able to set long-term financial goals and stick to them. These consumers manage their monthly cash flows and credit. However, 6 in 10 consumers are reactive when it comes to their financial lives, grappling with bills. Income is proving to be no buffer, not even for those earning more than $100,000 per year.

“Since February 2024, the share of high-income earners who are planners has plunged 25%,” the report found. “[Meanwhile, 52%] now fall into the reactor persona. This decline in proactive financial management may suggest that even people with substantial earnings face new financial pressures from inflation and rising living costs.”

Last year, half of consumers were planners and the other half reactors, and the fact that the share of planners has declined indicates that taking on revolving credit while decreasing savings has become a way of life.

Relative to April, the personal consumption expenditures price index for May increased 0.1%, which marked a 2.3% cumulative increase from the same month a year ago. Food prices rose 2%, and energy prices dipped 4.6%. Service prices were 3.4% higher, and prices for goods were 0.1% higher.

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