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- The super rich are spending less on yachts, jewellery and private jets thanks to recent falls in the stock market, Goldman Sachs says.
- “We find large effects of the stock market on luxury spending,” Goldman economist Daan Struyven wrote on Wednesday.
- Struyven says his team’s analysis is consistent with a “substantial” negative wealth effect on a measurement called the personal consumption expenditure.
The stock market and spending on luxury goods are highly correlated, so the lower the market goes, so goes spending.
That’s according to Goldman Sachs economist Daan Struyven, who wrote in a note on Wednesday that the dusk of a near decade-long bull run in the US equity market will weigh heavily on spending among the wealthy, negatively impacting the world’s biggest economy.
“We find large effects of the stock market on luxury spending,” says Struyven, who sees a strong relationship between stock price changes and spending on “jewelry and watches, pleasure boats and pleasure aircraft.”
- Goldman Sachs
Struyven says his team’s analysis is consistent with a “substantial” negative wealth effect on a measurement called the personal consumption expenditure – the component statistic for consumption in GDP.
He says he expects that PCE measurement to drop up to 2.5% this year “despite healthy labor income growth, an elevated saving rate, and cheaper oil.”
“Equity holdings as a share of income have risen substantially for the middle, upper-middle and upper wealth groups,” he wrote.
“Therefore, the hit to the wealth level from a 1% decline in stock prices is now about three times larger than in the late ’80s for the top 10% of households, and a third larger for those in the 50-90th percentiles.”
While stock ownership is usually concentrated among the rich, theories abound to the relationship between the stock market and the economy.
Bloomberg, for example, pointed out a caveat to Goldman’s take, saying that the National Bureau of Economic Research in 2013 found “at best weak evidence of a link between stock-market wealth and consumption.” The housing market has more of a wealth effect, it said.
- Goldman Sachs