US Wealth effects are a major swing factor for the consumer outlook

Wealth effects significantly influence consumer spending, with fluctuations in asset values shaping household financial behavior. we look ahead, the impact of these effects is expected to diminish, but how AI could play out could be a major factor in the contribution of consumer spending to growth.

Currently, a dollar increase in stock wealth boosts spending by four cents, while housing wealth contributes two cents. Notably, discretionary spending is more sensitive to wealth changes compared to essentials. The asymmetry in wealth effects indicates that negative impacts during asset price declines are more
pronounced than positive effects during rises, particularly for big-ticket items.

Our analysis suggests that positive wealth effects have added an average of 0.4 percentage points to consumer spending growth during the current economic expansion. However, as we anticipate a slowdown in wealth gains, particularly in stock wealth, the overall contribution to economic growth may wane.

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