BRIAN KANTOR: Wealth may matter more than income

• Published date: 26 April 2024
• Author: Brian Kantor Columnist
• Publication title: Business Day: Web Edition Articles (Johannesburg, South Africa)

Their pivot was precipitate. The still highly satisfactory state of the US economy must take the credit or the blame, depending on whether you a borrower or lender be, including in SA

US GDP or total output grew 3% year on year in the first quarter of 2024 and by a 1.6% annualised rate in the quarter. Retail sales, an allimportant measure of the state of demand in the US, had a lively February and March. Yet sales fell steadily for many months before, and retail sales deflated by the CPI are still 2% below that of January 2023.

This revived willingness of US households to spend more came despite minimal growth in real personal disposable incomes. In February, incomes were only 2% higher than they were in early 2023, despite very full employment. Tell that to the White House.

The good news about spending propensities, with their implications for high interest rates for longer, had a mixed reception in the financial markets. Given the new uncertainty about Fed action to come, stocks and bonds have fallen back in April.

This minor pullback has come after investors had enjoyed a full recovery from the significant declines in the valuations of stocks and bonds in 2022, when interest rates rose dramatically to deal with the inflation that had taken central banks and the markets by surprise.

Yet it has all worked out rather well in the financial and housing markets. History tells us that it takes a financial crisis to cause a recession, and the global financial system avoided one this time round.

The place to look for an explanation of US economic resilience is the behaviour of the US financial markets. US wealth, consisting mostly of financial assets, stocks, bonds and equity in homes, net of household debt, has been increasing dramatically since the global financial crisis of 2010. And it received a huge injection from the Covid19 relief payments and the strength of the financial markets in 2023.

US household wealth...