In a recent report released by Capital Economics, it was stated that consumer spending in the U.S. is expected to receive a boost from the ongoing stock market rally. The surge in household wealth, driven by the rally and higher house prices, is likely to result in a modest increase in consumer spending.
According to Andrew Hunter, the deputy chief U.S. economist at Capital Economics, the continued growth in the stock market is forecasted to push household net wealth to record levels, providing a tailwind to consumption growth. In the first quarter alone, American household stock holdings increased by $7 trillion, while total household net wealth, including the value of homes, climbed by $8.5 trillion.
Capital Economics predicts that household wealth will continue to rise, with an additional $20 trillion expected by the end of 2025. This growth is attributed to an “AI-fueled bubble” and a projected 6% increase in house prices by the end of next year.
While the increase in household wealth is likely to support a gradual acceleration in consumption growth, Capital Economics believes it will not lead to a sudden boom in spending. Instead, the firm anticipates that the added spending will bolster consumer spending over time.
Overall, the outlook for consumer spending appears positive, thanks to the wealth generated by the stock market rally and rising house prices. This news is likely to have a significant impact on the economy and financial markets in the coming months.
