If a company were burning through essentially all of its cash flow each month, I’d be pretty nervous about its prospects. But that’s basically how Americans have been running their households since Donald Trump returned to the presidency with an inflationary agenda of tariffs and, most recently, higher energy prices from the conflict with Iran.

The saving rate hit an almost four-year low in April as inflation forced consumers to spend more to sustain the same standard of living. For all the important caveats behind this number, it’s clear that households can’t go on like this forever.

Consumers are evidently watching the booming S&P 500 Index and erroneously assuming that their own financial futures are secure enough to put off frugality for another day. Given the fickle nature of the stock market, that’s a risky assumption to make both for them and the US economy, which depends on consumption to keep powering ahead.

Taken at face value, personal savings are now only 2.6 per cent of disposable personal income, a level last seen during the first half of 2022. Should the savings rate dip about a half percentage point lower, the next stop would be the all-time lows hit around two decades ago, a few years before the financial crisis.

Lower savings are, in part, a symptom of a couple of deleterious forces in the economy. Inflation at 3.8 per cent is at its highest in about three years, pushed up by the conflict with Iran, import duties and the insatiable demand that artificial intelligence is creating for key components. These price pressures are re-emerging at a time when sub-par labour demand is keeping nominal wage growth modest, meaning that real average hourly earnings have declined in the past 12 months. Various measures of consumer sentiment are also plummeting.

Americans aren’t letting the stagnation in their real incomes and lousy consumer psychology crimp total outlays for now, but they’re spending a lot more money for the same basket of goods. In April, gasoline and other energy spending accounted for 2.4 per cent of nominal consumption, the most since 2023. (To be clear, we’re still spending proportionately less on fuel than we did in the 2000s and early 2010s, but the burden of healthcare and other expenditures has also risen and boxed in household finances, so it’s not like a 50 per cent run-up in gas prices is a nothingburger.

Households are evidently financing their continued spending out of wealth – which has boomed thanks to the stock market’s AI enthusiasm – and by falling behind on debt repayments. Some 13.1 per cent of credit card balances are at least 90 days delinquent, the highest since 2011, according to the Federal Reserve Bank of New York.

History is fairly clear that declines in the saving rate can’t continue indefinitely. The only other times that the saving rate has been sustainably below 4 per cent were immediately preceding the dot-com bust; the 2005-2008 period before the financial crisis; and then again in 2022. The common thread was that asset markets had been running hot and the corresponding wealth effect managed to sustain consumption even in the face of inadequate employment income – at least for a while.

The fortunes of real estate and stocks do a shockingly good job of explaining why some consumers can throw caution to the wind and continue to spend even as savings dip perilously close to zero. Ballooning 401k accounts give people a false sense of security that their retirement financing is ahead of schedule and that they can spend most of their income and even run up debt. Market crashes, in those instances, exacerbate economic pain.

In the extreme cases, the results were recessionary. Wealth is easy-come, easy-go, and an economy that’s sustained by home equity or the stock market is inherently flimsy.

There are several reasons to pump the brakes on the most extreme negative predictions here. First, as my Bloomberg Economics colleagues have noted, April’s savings rate was probably negatively affected by a reduction in payments to farms under the Farmer Bridge Assistance Programme, which led to a one-off drag in the overall income data. But even if the saving rate catches a dead-cat bounce, it has been on a clear downward trajectory for the past year.

There are also some large secular forces at play that may further explain some, though not all, of the uniquely low level of savings at the moment. The members of the Baby Boomer generation are in their peak retirement years, and they’ve been spending down some of the savings that they accumulated in earlier decades.

None of this changes the fact that households are being squeezed by inflation and the main mitigating factor is the wealth effect from the AI boom and stocks more generally. If history shows us anything, it’s that booming asset markets can paper over declines in the savings rate for considerable periods of time. That doesn’t make it any less uncomfortable for those at the lower ends of the income distribution who aren’t lucky enough to have stock market exposure and it sure doesn’t mean it’s macro-economically sustainable in the long run.

• Jonathan Levin is a columnist focused on US markets and economics