Consumer spending in the U.S. is expected to receive a boost from the ongoing stock market rally, according to London-based Capital Economics. The surge in household wealth due to the rally and higher house prices is likely to drive a modest increase in consumer spending.
Andrew Hunter, deputy chief U.S. economist at Capital Economics, stated that the continued rise in the stock market is forecasted to push household net wealth to record levels as a share of incomes. This increase in wealth is expected to provide a tailwind to consumption growth in the coming years.
Household stock holdings in the U.S. saw a significant jump of $7 trillion in the first quarter, while total household net wealth, including the value of homes, climbed by $8.5 trillion. Capital Economics predicts that household wealth could increase by an additional $20 trillion by the end of 2025, driven by an “AI-fueled bubble” and a projected 6% rise in house prices by the end of next year.
While the added spending resulting from increased household wealth is likely to support consumer spending, Capital Economics believes it will lead to a gradual acceleration in consumption growth rather than a sudden boom. This forecast aligns with the firm’s expectation that rising household wealth will underpin consumer spending in the years ahead.
Overall, the positive outlook for household wealth and consumer spending is a promising sign for the U.S. economy as it continues to recover from the impact of the pandemic.