Equity wealth is carrying more weight in US consumer spending

US consumer spending in 2025 appears to be receiving substantial support from higher stock valuations, according to research by Banque de France economists Bigot and Espic. Their estimate attributes roughly half of observed US consumption growth to the stock-market wealth channel, making household balance sheets a central variable for assessing demand.

The mechanism is the wealth effect. When equity prices rise, households that hold shares or retirement accounts see their net worth increase. Some of that paper gain can be translated into spending, even without a matching rise in wages or current income. The size of the effect depends on who owns the assets and how different households adjust consumption when wealth changes.

Bigot and Espic rely on work by Federal Reserve Board economists Beach, Gamber and Moran, which separates the estimates by income group. That disaggregation is significant because equity ownership is concentrated unevenly across the income distribution, and the spending response to an additional dollar of wealth can vary by household type.

The findings point to equity wealth as an important input for short-term consumption analysis. In the cited work, changes in stock-market valuations are not treated only as a financial-market event. They also operate through household net worth and, from there, through personal consumption expenditures.

A separate calculation using Bureau of Economic Analysis data, the Atlanta Fed’s GDPNow estimate, Federal Reserve Flow of Funds figures and the author’s calculations compares real consumption with real household net worth. The series are expressed in chained 2017 dollars and deflated by the personal consumption expenditures price index.

That calculation shows consumption in billions of chained 2017 dollars at a seasonally adjusted annual rate, alongside household net worth in the same real-dollar terms. It also includes the Atlanta Fed GDPNow estimate dated July 8, which indicated 2% quarter-on-quarter annualized growth in consumption for the second quarter.

Second-quarter net worth data were not yet available in that calculation. Based on the rise in the S&P 500, the author estimated a 2.1% increase in household net worth. The calculation also notes that PCE deflator inflation was around 0.8%, implying a 1.3% real increase in net worth on a quarter-on-quarter, non-annualized basis.

The near-term reading is that consumption growth remains positive, though it is moderating. The cited estimates suggest that continued strength or weakness in equity markets could affect household spending through the wealth channel, with the measured impact depending on net worth data and the distribution of asset ownership across income groups.

This story draws on original reporting from Econbrowser.