What's fueling consumer spending?

Consumer spending has held up surprisingly well even as labor markets have cooled and sentiment has plumbed record lows. After slowing earlier this year it has once again firmed in recent months. Why?

At least part of the story is the rise in household wealth over the past few years. When wealth is above normal, this supports higher spending than would otherwise be the case. Households spend a greater share of their income, causing a decline in the savings rate. 

The last time we saw this in a big way was during the housing boom of the mid-2000s. Then, the rise in home equity fueled a spending boom that dropped the savings rate to just over 1% of disposable income in mid-2005.

This time around, rising home equity is playing a role, but more important has been the stock market boom. This has brought the savings rate down from 6.4% of income at the start of 2024 to 3.5% in November 2025. 

While the effect of higher net worth on spending supports economic growth, this is never a permanent effect. In 2008, the savings rate tripled overnight as home prices collapsed, and consumption declined sharply with the onset of the Great Recession. To a lesser extent, we also saw this with the 2022 stock market correction.

To be sure, consumer spending and saving are driven by other factors, including current and anticipated real income growth. (Not to mention the COVID shutdown.) But the clear effect of wealth may give us pause: a correction in equity values or home prices could spell an end to the current resilient consumer spending driven growth.