In recent weeks, the U.S. stock market has entered a correction, leading to analyses suggesting that a recession could occur. Concerns arise that household expenditure and capital investment, which are major drivers supporting U.S. economic growth, may decline due to falling stock prices.
Gabriel Chodorow-Reich, a professor at Harvard University, noted to The Wall Street Journal (WSJ) on the 16th (local time) that "if all other conditions remain the same, if stock prices fall by 20% in 2025, the economic growth rate for this year could drop by as much as 1 percentage point." The S&P 500 has decreased by 4.1% from the beginning of 2025 until the 14th, and British fund manager Alex Chartres also stated that "in an economy as hyper-financialized as the U.S., asset prices drive the economy," adding that "a decline in the asset market poses a risk of weakening the real economic situation."
The S&P 500 rose by 53% from 2023 to 2024. Along with the rise in dwelling prices, the stock market's growth prompted wealthy Americans to open their wallets, supporting U.S. economic growth. According to Moody's, the top 10% of income earners in the U.S. account for about half of total expenditure, which is an increase of 14 percentage points from 30 years ago (36%).
As a result, the U.S. economy has become highly dependent on the ultra-rich. According to the Federal Reserve (Fed), the top 10% of income-earning households owned stocks worth an average of about $2.1 million in 2022. This represents about 32% of their net worth, an increase of 6 percentage points from 2010 (about 26%).
Moreover, not only the high-income group, but the asset proportion in stocks among the U.S. middle class has also increased. At the end of last year, the proportion of stocks in American households' financial assets was 43%, the highest level on record. Most low-income households do not own stocks, but the proportion of those who do is continuing to rise.
Consequently, some economists worry that Americans will cut back on everything from vacations to clothing purchases due to a stock market crash. Evidence shows that expenditures are already declining. Retail expenditure fell by 0.9% in January, marking the largest monthly decrease since 2023.
Matthew Luzetti, the chief economist for Deutsche Bank in the U.S., stated that "many people have target amounts set for retirement. If a stock price decline makes it difficult to reach those targets, consumers may reduce expenditures to make up the difference," adding that "if stock prices fall by 20% without any other changes, consumer expenditure in 2025 could decrease by 1.2 percentage points." Since consumption accounts for about 70% of the U.S. Gross Domestic Product (GDP), in this case, GDP would decrease by 0.8 percentage points.