Wall Street portfolios are feeling heavier these days, and that weight is spilling over into consumer spending.
Stocks are up about 16% from a year ago, while home prices have only inched higher, rising 2% over the same period. Together, those moves have lifted household net worth to more than 800% of disposable income, near record highs outside of early 2022.
Goldman Sachs figures the recent rally in equities alone is giving consumer spending a lift. After dragging on growth earlier this year, wealth effects flipped in the third quarter, adding roughly 0.3 percentage points to annualised consumption growth.
Looking forward, the bank expects wealth gains to keep boosting spending by about 0.2 percentage points per quarter over the next year, assuming stock and home prices track nominal GDP.
The kicker is who benefits. The wealth effect is concentrated in the top two income quintiles, which together account for about 60% of total consumption.
Higher earners also spend more freely on discretionary items like travel and cars, while lower earners devote more of their budget to essentials such as food, energy and housing. As a result, Goldman estimates that the top 20% of households account for almost all of the current consumption boost.
Scenarios matter here. If equities climb 25% and home prices rise 6%, the 90th percentile outcome in Goldman’s modelling, spending could get an extra half-point lift. But if stocks fall 20% and home prices slide 4%, consumption would face a 0.4 percentage point drag.
For now, wealth is cushioning the economy’s biggest engine. The real question is how long that cushion holds if markets wobble or income growth slows further down the ladder.