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July 23, 2007

Good news on household wealth

Consumer spending drives three-fourths of the economy, so when the consumer sneezes the economy can catch a cold. But consumer income has had a hard time lately keeping up with price increases. While this is potentially bad news for the economy, N.C. State University economist Mike Walden says growing consumer wealth could bail out consumers and consequently our economy.

"There really are two fundamental economic factors that drive consumer spending," says Dr. Walden, a professor of agricultural and resource economics. "Most of us realize that one of them is income, which you mentioned. But the other is wealth –- that is, what the value of your savings and investments are. And fortunately while we have had sputtering on the consumer income factor we’ve actually seen consumer wealth increasing quite nicely.

"In fact," he adds, "total consumer wealth last year was up by $2 trillion.

"Now a lot of this was due to the stock market, and fortunately the stock market has continued to do well this year. And in fact gains in the stock market, I think, have come at just the right time to counteract a leveling off of wealth in the housing market," Walden concludes. "So, yes, we need to keep our eye on consumer income as a predictor of consumer spending, but we should not forget consumer wealth."

Posted by deeshore at July 23, 2007 08:00 AM