The Consumer Buffer is Thinning While Corporate Profits Expand

The story of the American consumer begins with their financial buffer, and recent trends in the personal savings rate show that cushion steadily thinning. As the chart below illustrates, households have moved from an elevated post-pandemic savings environment into a period marked by persistently lower savings behavior. Consumers are therefore increasingly reliant on credit, wage growth, or asset appreciation to maintain spending momentum—leaving them more exposed to shocks in employment or inflation.  

While nominal wages have risen, real median wages (what consumers can actually buy with each dollar) have grown only gradually. In contrast, productivity has shown a steadier upward trend, but the gap between productivity growth and real wage growth hints that workers may not be capturing the full gains of economic expansion. (Charts 2, 3, and 4)

While households face tightening financial conditions, corporate profits continue to sit near historic highs, reflecting a remarkable divergence between business performance and consumer resilience. According to the BEA’s corporate profits series, profits after tax reached $3.59 trillion SAAR (seasonally adjusted annual rate) in Q3 2025, marking steady gains over the last several years despite slowing real wage growth and reduced household savings. This strength in profitability suggests that corporations have successfully maintained pricing power and margins—even during periods of economic cooling— helped by productivity gains and cost

management initiatives.

So, where does this leave us? Suffice it to say, the K-shaped economy is alive, and well, quite evident. Those with investment assets (stocks, real estate, and other real assets) continue to benefit from the strength in corporate profits; those living paycheck-to-paycheck continue to just get by. And while AI has come for some jobs, with the unemployment rate stabilizing to some extent, it could be expected that this low-hire, low-fire environment will be with us for some time.

No matter what the larger economic forces at play are, developing a plan for your own personal situation is paramount, and all of us at LVM are here to help clients define and plan for their own personal goals.

-The LVM Team