One of the most underappreciated risks to the economic outlook is the historically low personal savings rate and its impact on personal consumption. At roughly 2.6%, the current savings rate is the lowest since 1960, excluding a few years before the 2008 financial crisis and a month or two during the pandemic. For context, the average since 2010 is 6.60%. Excluding the pandemic volatility in savings (2020-2023), the average since 2010 is 5.90%.The personal savings rate is a direct result of consumers’ spending decisions. When consumers save less, by definition, they spend more, and vice versa. The declining savings rate, as we show below, combined with the fact that personal consumption accounts for roughly two-thirds of GDP, has led to a meaningful tailwind for GDP growth over the past two years. The reduction in savings to its current low rates has helped sustain spending despite a recent decline in real wages. Simply, we, in aggregate, have been funding our spending by saving less.The problem is that historically, low savings rates tend to revert higher. Whether driven by rising unemployment, tightening credit conditions, or a simple behavioral cautionary shift, as consumer confidence data hints at, households will eventually rebuild their financial cushions. Thus, consumers will, at some point, save more and spend less, creating a headwind for economic growth.The Week AheadThe labor market will take center stage this week, with JOLTs on Tuesday, monthly ADP on Wednesday, and the BLS Employment report on Friday. The current forecast for BLS job growth is 102k, similar to last month’s 115k. Growing attention is being paid to the average hourly earnings. Last month they grew by 0.2% or 2.4% annualized. Such is below the current inflation rate resulting in a decline in real wages. This helps explain the low savings rate and recent commentary by Walmart (NASDAQ:WMT) about the thrifty behaviours of its customers.It appears the first time we will hear from Kevin Warsh in his official role as the Fed Chair will be at the next FOMC meeting on June 17th.Tweet of the DayOriginal Post