Below is a chart from today's Early Look written by Macro & Financials analyst Josh Steiner.
One paper from the NY Fed (Ludvigson & Steindel) written in the late 1990s made an interesting observation. While their overall observation period of 1953-1997 found a 4% spend rate from Stock Market Wealth changes, they observed very different results for the periods 1953-1975, 1976-1985, and 1986-1997.
Specifically, they found that from 1953-1975 the spend rate was 2.6 cents on the dollar and from 1986-1997 it was 2.1 cents on the dollar. But, from 1976-1985, the spend rate was a much higher 10.6 cents on the dollar. But why?
Perhaps the answer is inflation. In a high-inflation environment there is a natural tendency to pull forward consumption. In the 1953-1975 period, inflation was very low – averaging around 2-3%, while in the 1986-1997 period it was similarly in the 3-4% range. But in the 1976-1985 period it was a much higher 7-8%. Which of those three sounds like today’s environment?