Oct 15, 2026 · 6 min

US spending leans on savings as real incomes stall

UBS On-Air: Paul Donovan Daily Audio 'Peculiar US price increases'

If measured income growth is overstated, continued US consumption may depend less on earnings than on households’ financial buffers.

3 key takeaways

1US inflation measures may include a substantial “fantasy” component, complicating the picture of real income growth.
2Real incomes appear to have stagnated since January 2025, weakening the earnings base behind continued spending.
3Retail sales could reveal whether households are cutting saving, using side-hustle income, or drawing down existing savings.

Don't miss

Paul Donovan’s argument that continued spending may rely on side-hustle income, reduced saving, or drawing down existing savings.

The brief

Paul Donovan examines the latest US consumer price data and argues that headline measures contain a significant “fantasy” component, making real income growth harder to judge.

The central tension is simple: spending continues, but real incomes appear to have stagnated since January 2025. That leaves household savings increasingly important to consumption.

Donovan points to three possible supports for spending: side-hustle income, reduced saving, or drawing down existing savings. Each implies a different reading of consumer resilience.

Retail sales become the practical test of the argument, offering clues about whether households remain willing to spend despite weaker measured income growth.

The episode reframes inflation analysis around household balance sheets: consumption can keep rising, but only if consumers accept less saving or use resources already accumulated.

What was said on this episode

12 statements · 5 positive · 3 negative · 1 mixed · 3 neutral

Paul Donovanon US household savings and consumptionNeutral1:00
Real consumption growth requires more work or reduced household saving.
“Growing consumer spending in real terms therefore requires either people taking on side hustles or second jobs which may well have been happening to some extent or for people to cut savings rates or for people to dip into their stock of savings to pay for their additional spending.”
Listen at 1:00
Paul Donovanon US household savingsPositive1:22
Continued use of savings will be key to sustaining US economic activity.
“Monitoring the willingness of consumers to keep using savings in this manner is going to be key to sustaining economic activity.”
Listen at 1:22
Paul Donovanon US airfaresNegative1:51
Recent US airfare increases appear questionable.
“The airfare growth in the States does look a little dodgy.”
Listen at 1:51
Paul Donovanon US airlinesNegative2:01
US airlines have raised airfares much faster since March.
“But since March, they've been raising prices at a dramatically higher rate.”
Listen at 2:01
Paul Donovanon Artificial IntelligenceNeutral2:08
AI demand was blamed for higher software and computer prices.
“Higher software and computer prices were blamed on demand for the shiny new toy that is artificial intelligence.”
Listen at 2:08
Paul Donovanon US price increasesPositive2:28
The breadth of US price increases is narrowing.
“The breadth of price increases, corresponding to a measure US Federal Reserve Chair Walsh made up but has never properly detailed, is narrowing.”
Listen at 2:28
Paul Donovanon US tariffsPositive2:37
Price-increase breadth will narrow as tariff effects fade.
“That perhaps is inevitable as tariff effects fade from the US inflation calculation.”
Listen at 2:37
Paul Donovanon Retail diesel pricesMixed2:55
Refinery bombing may not substantially change retail diesel prices.
“This does not necessarily change the retail diesel price that much.”
Listen at 2:55
Paul Donovanon Trump-Putin diesel dealNeutral2:59
Markets did not expect Trump’s diesel deal with Putin to cause dramatic price effects.
“Markets were not expecting dramatic price consequences from US President Trump's diesel deal with Russia's President Putin, after all.”
Listen at 2:59
Paul Donovanon US-Russia diesel dealNegative3:09
Renewed refinery attacks weaken the deal’s political narrative.
“But it does rather weaken the political narrative, which is presumably what the US deal with Russia was all about.”
Listen at 3:09
Paul Donovanon UK economic activity dataPositive3:17
UK activity, production, and construction data exceeded expectations in August.
“UK economic activity data, manufacturing and industrial production, for instance, and construction output, all came out stronger than expected in August.”
Listen at 3:17
Paul Donovanon United KingdomPositive3:31
The UK was the fastest-growing G7 economy in the first half of the year.
“The UK was the strongest growing G7 economy in the first six months of this year.”
Listen at 3:31

Statements are attributed to the speaker as said on the episode and reflect their view at the time, not PodLume's. They are not advice.