Stock Market Shakeup Could Hinder Consumer Spending Even Further

Economists are reportedly concerned that recent stock market turbulence could drive down consumer spending.

That’s because, per a report Sunday (March 16) by The Wall Street Journal (WSJ), the top 10% of American earners have in the last four years boosted spending by 58%. And it’s not just the ultra-wealthy investing in the stock market, with Vanguard and Fidelity reporting record participation and contributions to their 401(k) plans for wage earners.

At the close of 2024, 43% of American households’ financial assets were in stocks, the highest percentage on record, WSJ said, citing Federal Reserve data. And while many lower-income households don’t own equities, the share that does is rising.

This has left economists worried that a severe market collapse could lead Americans to reduce spending on things like vacations and new apparel, what’s known as the wealth effect.

There are already some signs this is happening, with companies such as Delta Air Lines, Foot Locker and Jack Daniel’s maker Brown-Forman reporting consumer caution.

That’s on top of the strain witnessed among discount merchants, such as Dollar General, which discussed tighter spending during its fourth-quarter earnings report last week.

“Our customers continue to report that their financial situation has worsened over the last year, as they have been negatively impacted by ongoing inflation,” Todd Vasos, the company’s CEO, told analysts. “Many of our customers report that they only have enough money for basic essentials, with some noting that they have had to sacrifice even on the necessities.”

And last week, the University of Michigan published its monthly survey of consumer sentiment, showing that metric had hit its lowest level since November 2022, partially because of sliding expectations for personal finances and the stock market.

“Consumers are souring on their job prospects, and their expectations about inflation are worsening. For merchants, that means a perfect storm is brewing,” PYMNTS wrote at the time. “Their own costs are rising, their ability to pass those costs along (in the form of higher prices) will be truncated, and gauging customer demand will be difficult at best and impossible at worst.”

As PYMNTS CEO Karen Webster wrote in a recent column, when economic conditions tighten, high earners are known to curtail their spending, much as lower-income households do.

“Consumers across all income brackets are likely to pull back on spending, but for different reasons,” Webster wrote.

“Those with savings cushions may voluntarily push pause on spending until they have more certainty in order to preserve cash and income, while those without financial shock absorbers in the form of savings will be forced to cut back out of necessity.”