Consumer spending has been driven by the wealthiest consumers. It will take more than just inflation to slow these folks down.
But exactly who is doing that spending is changing. And opening up a new question about the next phase of this economic expansion.
The highest 20% of earners have accounted for 45% of consumption since 2020, about 6 percentage points more than typically seen in a given year since 2004. On this front, Morgan Stanley's team has some ideas. As readers are well aware, stock and home prices have risen sharply since 2019, though Morgan Stanley expects the latter to stall out next year.
"And indeed our analysts who cover restaurants and luxury brands both point to an aspirational consumer that has begun pull-back spending on fine dining and luxury shopping. As wealthy households approach satiety as well, aggregate consumer spending will shift into a lower gear. For a sharper step-down, broad-based white-collar layoffs and significant loss of wealth, particularly in housing, are key.
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