Falling Stocks Are Threatening A Pillar Of The ‘Real Economy’ | Global News Avenue

Economists say Donald Trump and his advisers have dismissed the decline in stock prices, saying they are more focused on the “realistic economy”, but falling stocks could undermine one of the main forces supporting job growth.

After the financial market fell last week, Send the Standard Index 500 Stock Index to Correction AreaTrump and his top economic adviser dismissed concerns about the future of the economy. After all, as the saying goes, The stock market is not the economyeven if it reflects the expectations of business leaders in the direction of economic development.

Trump said last week: “When reporters asked him about the stock market plunge, Trump said. “I think some people will make great deals by buying stocks and bonds and everything they buy. I think we’re going to have a real economy, not a fake economy.”

But there is at least one way in which the stock market affects the actual economy, that is, the “real economy” involves people’s ability to go to work, get paid and buy goods and services.

Consumer spending is the main engine of U.S. economic growth as measured by GDP, and falling stocks may throw some sand in the engine’s equipment. This is because over the past few years, wealthy consumers have been increasing their shopping share as inflation erodes the purchasing power of American households, supported by the previously booming stock market.

Moody’s analysis shows Wall Street Journal.

Wealth effect

People are called “Wealth effect. ”

As high-income households tend to hold more stocks, large spenders may start tightening their belts due to the recent sell-off. This could trigger a domino effect that leads to the recession: Reducing spending means fewer businesses need to hire and fewer people get paid, while the “real economy” brings promises.

Over the past four years, the sharp rise in stock prices has made the “wealth effect” more powerful than usual. A model from Oxford Economics shows that the wealth effect currently has a fourfold normal effect on consumer spending. If the effect disappears, this can make the economy particularly vulnerable.

Consumer spending has been faltering in recent months, with retail sales falling in January Recover moderately next month.

“If the decline in stocks continues to decline, it will have a negative impact on consumer spending,” Ryan Sweet, chief economist at Oxford Economics, wrote in a comment last week. “Net household wealth is more important to the consumer spending outlook than before. The stronger wealth effect proves to be a headwind for overall consumer spending Bear market. ”