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Economy
In reply to the discussion: STOCK MARKET WATCH -- Friday, 18 April 2014 [View all]xchrom
(108,903 posts)35. Wealth Effect Failing to Move Wealthy to Spend
Wealth Effect Failing to Move Wealthy to Spend
http://www.bloomberg.com/news/2014-04-17/wealth-effect-failing-to-move-wealthy-to-spend.html
The wealth effect isnt what it once was for the U.S. economy.
While the wealth of American households has jumped more than $25 trillion since early 2009 amid rising equity and home prices, the pass-through to consumer spending is lagging the $1 trillion fillip that would have been anticipated historically, according to Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York.
This means consumer spending has been exceptionally weak once wealth is accounted for, he said. With wealth gains now moderating, consumer spending could revert to what is already a weak trend, Feroli said in an April 11 report.
His calculations show that since the recession ended in 2009, households have spent 1.7 cents of every extra $1 earned in wealth. Thats 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 percent once the wealth effect is stripped out.
One reason for the adjustment may be that those enjoying gains in wealth are already rich, so have less propensity to increase spending incrementally. Withdrawing equity from homes has also been negative for five years.
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