You are here

Rich people will drag down US economy by spending less: Goldman

The share of personal consumption expenditures spent on jewellery is "highly correlated with moves in the stock market", says Goldman Sachs economist Daan Struyven.


THE stock market selloff is going to be a significant drag on the US economy this year as wealthy households feel its impact, according to Goldman Sachs Group Inc.

Lower equity prices could take half a percentage point off US gross domestic product growth in 2019, with overall tighter financial conditions restricting expansion by around one percentage point, Goldman economist Daan Struyven wrote in a note on Tuesday.

In October, he had said that the positive wealth effect from equity gains in 2017 and early 2018 were likely to have evaporated.

"The hit to the wealth level from a one per cent decline in stock prices is now about three times larger than in the late '80s for the top 10 per cent of households and a third larger for those in the 50-90th percentiles," Mr Struyven said, citing the increase in equity holdings as a share of disposable household income.

Your feedback is important to us

Tell us what you think. Email us at

He argued against the idea that the wealth effect from the stock market might be limited due to a higher concentration of stock ownership than in previous decades, and a lower propensity to spend among rich households. To prove that this thesis doesn't hold up, he cited increases in equity holdings, as well as a high sensitivity of luxury goods spending to stock market fortunes, as evidence.

That's at odds with a paper from the National Bureau of Economic Research in 2013 that finds "at best weak evidence of a link between stock market wealth and consumption," and asserts that the housing market has much more of a wealth effect.

The share of personal consumption expenditures spent on jewellery is "highly correlated with moves in the stock market", Mr Struyven wrote in the Jan 15 report.

"Focusing on a sample since 1995, we find large effects of the stock market on luxury spending," he said. Regressions of spending growth on stock price changes confirm a strong relationship "for jewellery and watches, pleasure boats and pleasure aircraft". BLOOMBERG

BT is now on Telegram!

For daily updates on weekdays and specially selected content for the weekend. Subscribe to