Goolsbee says consumer spending strength is broad, not driven by stocks

Chicago Federal Reserve president Austan Goolsbee stated that US consumer spending is currently supported by solid, broad-based strength across income levels, rather than being artificially propped up by the recent surge in equity markets. In an interview with Yahoo Finance, Goolsbee argued that the persistence of strong spending figures indicates a wide base of economic activity rather than reliance on wealth effects from higher-income investors.

The S&P 500 is up nearly 13% this year, driven by investment in artificial intelligence. Some market observers suggest this rally is fueling spending among higher-income consumers. Goolsbee countered this view by citing Bureau of Labor Statistics data, which shows that the bottom 90% of the income distribution accounts for roughly 75% of all spending in the US economy. He noted that it is difficult to sustain such strong aggregate spending without it being broad-based.

Recent data from the New York Fed supports this assessment. The statistics indicate that cumulative real spending growth over the past three years has remained similar across all income tiers. Specifically, the gap in spending growth between high- and low-income consumers has differed by only 1 percentage point. Goolsbee pointed to this narrow margin as evidence that the market boom is not the primary driver of consumption.

Goolsbee acknowledged that stock ownership remains heavily concentrated in the top 10% of earners. However, he argued that if a booming market were the main force behind consumption, the data would show a distinct divergence in spending rates between that top group and everyone else. He stated that such larger differences have not been observed in the current figures.

The Federal Reserve's Beige Book, a compilation of anecdotal evidence from its 12 district banks, presents a more mixed picture. The report noted that over half of its regional districts saw consumer spending driven by high-income households. Even in the Dallas district, where companies reported solid retail sales, there were reports of lower-income customers being more cautious with their spending. This suggests that while aggregate data may show broad strength, regional and income-specific behaviors remain bifurcated.

Goolsbee also issued a warning regarding speculative market bubbles. He cautioned that intensifying hype around artificial intelligence could push up stock valuations, increasing the temptation for consumers to spend money they do not actually have. He explained that such behavior could overload the short-run capacity of the economy and generate inflation. The Chicago Fed president emphasized that while current spending appears resilient, the potential for inflationary pressure remains if asset prices decouple from economic fundamentals.