Income, spending and profits explain why Americans see a two-sided economy

Thursday featured the release of the always-important income and spending report, and it’s what you likely imagined it to be. Year-over-year inflation still rising, and consumer spending barely growing beyond the price increases.

Inflation-adjusted consumer spending increased just 0.1% last month, while the personal consumption expenditures price index rose 3.8% from a year earlier, the most since 2023, a report from the Bureau of Economic Analysis showed Thursday. The so-called core PCE index, which excludes food and energy items, was up 3.3% from a year earlier.

The numbers suggest consumers are facing increasing pressures as uneven hiring trends and the rising cost of living erodes incomes and savings. The surge in prices for fuel and other materials sparked by the Middle East conflict is reverberating through the economy and has driven consumer sentiment to record lows.

While consumer spending did exceed inflation last month, income growth didn’t keep up with rising prices. That meant Americans continued to reduce their savings rates in April.

Personal income, a metric which is not adjusted for inflation, was flat in April, while wages and salaries advanced 0.2%. Inflation-adjusted disposable income fell 0.5%, marking the third straight monthly decline. The saving rate dropped to 2.6%, the lowest since 2022.

Retailers including Walmart Inc. have warned that high fuel costs are squeezing their bottom lines and may soon begin to show up in prices of products on their shelves. Higher tax refunds have helped support consumer spending in recent months, though they’ve been partly offset by prices at the pump rising to the highest levels in nearly four years.

UW-Madison professor Menzie Chinn has a telling graph at Econbrowser, where you can see how inflation-adjusted consumption has kept rising in the last year, while real incomes stayed around the same level for the rest of 2025, and are now declining in 2026.

And on a per-capita basis, inflation-adjusted disposable incomes in America have now fallen below where they were at in November 2024 – when Donald Trump was returned to power in large part because enough low-info American voters thought he would improve people’s economic situation.

Also notice that real per-capita incomes had gone up nearly 9% in the 31 months from that trough in June 2022 to Trump’s election in Nov 2024. And unlike 2022, there aren’t 2 years of stimmy payments in the bank to pay the higher bills in our inflationary times of 2026.

Another report that I was awaiting on Thursday morning was the updated figures for GDP growth for the first 3 months of 2026.

Separate BEA figures showed the economy expanded in the first quarter at a 1.6% annualized pace, slower than previously estimated after downward revisions to inventory investment and consumer spending. The initial estimate last month showed 2% growth.

A new item in the revised GDP report was the first look at what corporate profits were over the first 3 months of the year. And that showed a small increase of just over $40 billion (annualized) for Q1, but up more than $1.85 trillion since the end of 2020.

Along with the small boost in profits, I also see that post-tax corporate profit margins for Q1 2026 were at their highest levels since the end of 2023, maintaining their elevated post-COVID levels.

Let’s see where these profit and margin numbers go with the higher prices and higher costs that have and likely will see for all of the 2nd quarter of 2026.

Speaking of uses of excess profits, let's see what Jeff Bezos is pouring money into these days.

BREAKING: Blue Origin's New Glenn blows up at Launch Complex-36 while attempting to static fire.

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— AZ Intel (@azintel.bsky.social) May 28, 2026 at 8:12 PM

JOB CREATORS, BABY!

Put these obscenely high profits together with the dwindling savings amount and how non-executive Americans are seeing their wage growth falling further below the inflation rate with every month, and you wonder why consumer sentiment is at record lows? Because I don’t.