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20-04-2014, 09:39 AM
One reason for the adjustment may be that those enjoying gains in wealth are already rich, and so have less propensity to increase spending incrementally.
Wealth effect fails to move wealthy in US to spend
PUBLISHED: APRIL 19, 4:13 AM
NEW YORK — The wealth effect is not what it once was for the United States economy.
While the wealth of American households has jumped more than US$25 trillion (S$31.3 trillion) since early 2009 amid rising equity and home prices, the pass-through to consumer spending is lagging the US$1 trillion fillip that would have been anticipated historically, said Mr Michael Feroli, chief US economist at JPMorgan Chase & Co in New York and a former economist at the Federal Reserve Board.
This means that consumer spending has been exceptionally weak once wealth is accounted for and with wealth gains now moderating, consumer spending could revert to what is already a weak trend, Mr Feroli said in a recent report.
His calculations show that since the recession ended in 2009, households have spent 1.7 cents of every extra US$1 earned in wealth.
That is less than half the 3.8-cent average implied by data between 1952 and 2009, suggesting the trend for consumer spending gains over the past three years has been less than 1 per cent once the wealth effect is stripped out.
One reason for the adjustment may be that those enjoying gains in wealth are already rich, and so have less propensity to increase spending incrementally.
Withdrawing equity from homes has also been negative for five years.
The good news is that income expectations are starting to pick up, which should encourage the spending acceleration that greater wealth failed to spark, said Mr Feroli. BLOOMBERG
Wealth effect fails to move wealthy in US to spend
PUBLISHED: APRIL 19, 4:13 AM
NEW YORK — The wealth effect is not what it once was for the United States economy.
While the wealth of American households has jumped more than US$25 trillion (S$31.3 trillion) since early 2009 amid rising equity and home prices, the pass-through to consumer spending is lagging the US$1 trillion fillip that would have been anticipated historically, said Mr Michael Feroli, chief US economist at JPMorgan Chase & Co in New York and a former economist at the Federal Reserve Board.
This means that consumer spending has been exceptionally weak once wealth is accounted for and with wealth gains now moderating, consumer spending could revert to what is already a weak trend, Mr Feroli said in a recent report.
His calculations show that since the recession ended in 2009, households have spent 1.7 cents of every extra US$1 earned in wealth.
That is less than half the 3.8-cent average implied by data between 1952 and 2009, suggesting the trend for consumer spending gains over the past three years has been less than 1 per cent once the wealth effect is stripped out.
One reason for the adjustment may be that those enjoying gains in wealth are already rich, and so have less propensity to increase spending incrementally.
Withdrawing equity from homes has also been negative for five years.
The good news is that income expectations are starting to pick up, which should encourage the spending acceleration that greater wealth failed to spark, said Mr Feroli. BLOOMBERG