Goldman Sachs analysts estimate that the drag on U.S. consumer spending from earlier declines in equities and housing has now faded. In the second quarter, wealth effects shaved around 0.2 percentage points from annualized consumption growth, but in the third quarter they are thought to be providing a 0.3pp boost, largely from higher-income households.
Looking further ahead, the note suggests that gains in household wealth could add about 0.2pp to quarterly annualized consumption growth over the next year, provided equity and home prices track nominal GDP from current levels.
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The wealth effect is the idea that when households see their wealth rise — for example through higher share prices or house values — they tend to spend more, boosting consumption. Conversely, when asset prices fall, households often cut back on spending. It’s an important channel linking financial markets and property values to the real economy.
