Skip to main content
Services
Investment Strategy
Wealth Management
Tax Planning
Financial Planning x Tech
Learn
Insights
Videos
Case Studies
Benefits of combining CPA & CFP
Firm
Log in
Financial Plan Login
Investment Report Login
Schedule a call
Services
Services
Investment Strategy
Wealth Management
Tax Planning
Financial Planning x Tech
Learn
Learn
Insights
Videos
Case Studies
Benefits of combining CPA & CFP
FirmLog in
Log in
Financial Plan Login
Investment Report Login
Book a Call
© 2020 Brickley Wealth Management
Dive into the significance of consumer spending in shaping the U.S. economy and its influence on economic trends and stock market dynamics.
Blog Post
by ,

How Consumer Spending Supports the Economy and Markets

Investing
Inflation
Financial Planning
Follow Us:
Notice: The content of this post is over two years old, information may not be up to date.

Consumer spending is the backbone of the U.S. economy, constituting over two-thirds of our nearly $28 trillion GDP. When consumers spend money on everyday goods and services, and make large one-time purchases, it not only helps to spur economic growth but is also a reflection of economic trends. This is because many factors affect consumer purchases including consumer sentiment, the job market, household net worth, inflation, housing prices, the stock market and more. What do investors need to know about the state of the consumer and how it might affect the economy and stock market in the coming year?

Consumer spending is the largest component of U.S. GDP

Of the various components of GDP, consumer spending has been the most stable over the past decade at a time when government spending has fluctuated, business investment has been low, and the country has been a net importer of goods. In the fourth quarter of 2023, the economy grew 3.3% with consumer spending contributing 1.9 percentage points to that total. The strength of the consumer has helped the economy stay out of recession despite high inflation rates, layoffs in the tech sector, and ongoing uncertainty. In turn, this has helped to propel the stock market to new all-time highs.

While consumer spending has a direct impact on economic growth, how everyday consumers feel about the economy can vary dramatically over time. Perhaps the best example is the decade following the 2008 global financial crisis. Consumer sentiment was poor for many years due to a weak job market. The housing bust and a sharp decline in manufacturing activity led many to give up on finding work, resulting in a falling labor force participation rate. Even when the overall economy was recovering, consumers were pessimistic. The fact that housing prices collapsed and it took the S&P 500 five years to recover also led to lower consumer net worth.

In many ways, the situation today is the opposite of the post-2008 period. Despite fears of economic weakness, the unemployment rate is still at a historically low 3.7%, 353,000 jobs were added in January, wages have risen over 4% during the past year, and there are still nine million job openings across the country. The fact that the stock market is near all-time highs has also helped to boost the "wealth effect" among consumers. While the housing market still faces many challenges with 30-year mortgage rates around 7%, transactions that do occur are closing at relatively high prices.

Consumers are feeling more optimistic about the economy

The accompanying chart shows that while consumer sentiment has not yet returned to historical averages after plummeting two years ago, they have improved dramatically. The rise and fall of inflation has been a major contributor to this effect since rising prices directly hit consumer pocketbooks. Inflation rates based on measures such as the Consumer Price Index have improved and the same University of Michigan survey shows that consumers expect inflation over the next year of only 3%. Gasoline prices, for instance, are hovering around $3.20 on average after reaching $5 less than two years ago.

While the consumer story is mostly positive, there are reasons to believe that spending could slow. Households have drawn down their extra cash and savings rates have fallen to only 3.7%, well below the historical average of 6.3%. Recent consumer spending data have also been mixed. On a year-over-year basis, retail sales have decelerated to 0.6%, or -0.8% month-over-month. As the accompanying chart shows, even online retailers have experienced a slowdown in growth after a decade of robust sales growth.

Retail sales have decelerated as consumers have drawn down their savings

Another important piece of the consumer puzzle is the level of household debt. Higher interest rates are a drag on household income statements and balance sheets, especially with the 10-year Treasury yield back around 4.3%. The latest Federal Reserve Bank of New York data show that total credit card debt is just under $1.13 trillion and 9.7% of balances are 90 days delinquent or more. Student loans are also back in the news with the White House seeking to forgive certain eligible borrowers. While there are no easy solutions to these underlying challenges, the financial stress on consumers could improve somewhat as the Fed begins to cut rates later this year.

The bottom line? Consumers are increasingly optimistic as inflation improves and the job market remains strong. While there are still challenges ahead, consumer spending could continue to support the economy and stock market.

Copyright (c) 2024 Clearnomics, Inc. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on or via www.clearnomics.com or any affiliated websites, applications, or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company's stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security--including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed in this report are proprietary to Clearnomics, Inc. and constitute valuable intellectual property. All unauthorized reproduction or other use of material from Clearnomics, Inc. shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. Clearnomics, Inc. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. Clearnomics, Inc. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights.

–––

Brickley Wealth Management is a Registered Investment Adviser*. Advisory services are only offered to clients or prospective clients where Brickley Wealth Management and its representatives are properly licensed or exempt from licensure. The information throughout this website is solely for informational purposes. The content is developed from sources believed to provide accurate information, and we conduct reasonable due diligence review however, the information contained throughout this website is subject to change without notice and is not free from error. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. Readers should conduct their own review and exercise judgment prior to investing and should carefully consider their own investment objectives and not rely on any post, chart, graph or marketing piece to make a decision. No investment or tax advice may be rendered by Brickley Wealth Management or Brickley & Company unless a client service agreement is in place. We are not providing any personalized investment advice through this website. Please consult your investment, tax, or legal advisor for assistance regarding your individual situation. Brickley Wealth Management does not provide legal advice, and nothing in this website shall be construed as legal advice. For more information on our firm and our advisers, please see the latest Form ADV and Part 2 Brochures and our Client Relationship Summary https://adviserinfo.sec.gov/firm/summary/287487. For a copy of our Privacy Notice, please go here.

*Please note that the term "registered investment adviser" and description of our firm and/or our associates as "registered" does not imply a certain level of skill or training.

Three Brickley team members smile at the camera in their headshots, the headshots overlap in a decorative style.

Need help understanding your financial situation?

Our team is ready to help you plan for your financial future. If you’re ready to make a plan, we make it easy.
Book a call

Key Financial Terms 
Related to this Post:

This is some text inside of a div block.

Balance Sheet

The financial statement that contains details of an individual’s or company’s assets and liabilities at a specific point in time.
This is some text inside of a div block.

Inflation

The rate at which the general level of prices for goods and services is rising, causing a decrease in purchasing power.
This is some text inside of a div block.

Net Worth

Net Worth is the total value of an individual's or entity's assets minus liabilities, representing the financial position and overall wealth.
This is some text inside of a div block.

Stocks

Represent ownership in a company. Investors may profit from capital gains and dividends.
This is some text inside of a div block.

Yield

Yield is the annual income you earn from an investment, expressed as a percentage of the investment's original cost.

Brickley Insights

Subscribe to practical insights on important wealth management topics.

Your submission has been received!
Oops! Something went wrong while submitting the form.
We respect your privacy.
Three Brickley team members smile at the camera in their headshots, the headshots overlap in a decorative style.

Ready to make a plan?
We make it easy.

Book a Call
contact@brickleywealth.com
(650) 638-0111
Follow Brickley Wealth on LinkedIn.Follow Brickley Wealth on Twitter.

Services

Wealth Management
Tax Planning
Investment Strategy
Financial Planning x Tech

Learn

Case studies
About Us
BLOG
Benefits of combining
CPA & CFP
Finance Definitions

Connect

Contact
Financial Plan Login
Investment Report Login
Charles Schwab

Brickley Insights

Subscribe to practical insights on important wealth management topics.

Your submission has been received!
Oops! Something went wrong while submitting the form.
We respect your privacy.
161 W 25th Ave, Suite #204, San Mateo, CA 94403
Contact@brickleywealth.com
(650) 638-0111

Brickley Wealth Management is a Registered Investment Adviser*. Advisory services are only offered to clients or prospective clients where Brickley Wealth Management and its representatives are properly licensed or exempt from licensure. The information throughout this website is solely for informational purposes. The content is developed from sources believed to provide accurate information, and we conduct reasonable due diligence review however, the information contained throughout this website is subject to change without notice and is not free from error. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. Readers should conduct their own review and exercise judgment prior to investing and should carefully consider their own investment objectives and not rely on any post, chart, graph or marketing piece to make a decision. No investment or tax advice may be rendered by Brickley Wealth Management or Brickley & Company unless a client service agreement is in place. We are not providing any personalized investment advice through this website. Please consult your investment, tax, or legal advisor for assistance regarding your individual situation. Brickley Wealth Management does not provide legal advice, and nothing in this website shall be construed as legal advice. For more information on our firm and our advisers, please see the latest Form ADV and Part 2 Brochures and our Client Relationship Summary https://adviserinfo.sec.gov/firm/summary/287487. For a copy of our Privacy Notice, please go here.

*Please note that the term "registered investment adviser" and description of our firm and/or our associates as "registered" does not imply a certain level of skill or training.

2020 Brickley Wealth Management. All rights reserved.
Privacy Policy

Your Privacy is important to us

Customize your cookie preferences or click “Accept All” to agree to the storing of cookies on your device. View our Privacy Policy for more information.

Preferences
Accept
Deny
Privacy Preference Center

Below we list the different types of cookies that we use on the Site.  The specific cookies that we use, and the categories to which they belong, are available in the consent manager. To the extent any personal information is collected through cookies, our Privacy Policy applies and complements this Policy.

Always Allow Cookies
Close
Manage Consent Preferences
Required cookies enable you to navigate the Site and to use its services and features. Without these absolutely necessary cookies, we may not be able to provide the Site or certain services or features, and the Site will not perform as smoothly for you as we would like it to.

These cookies are used to deliver advertising that is more relevant to you and your interests. They may also be used to limit the number of times you see an advertisement and measure the effectiveness of advertising campaigns. Advertising networks usually place them with the website operator’s permission.

These cookies allow us to analyze your use of the Site to evaluate and improve our performance, for example, by providing us information about how our site is used.

Reject AllConfirm My Choices
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.