The U.S. consumer might be the engine of global growth — just not the roaring V12 it used to be.
From the fourth quarter of 2003 through 2006, amid the real estate bubble, personal consumption expenditures grew at an average annual clip of 3.5 percent. Since the S&P/Case-Shiller Composite 20-City Home Price Index bottomed out in March 2012, however, personal consumption expenditures have increased by just 2.3 percent, on average.
In an economic letter published by the Federal Reserve Bank of Dallas, economists John Duca, Anthony Murphy, and Elizabeth Organ identify one reason why this American muscle car has lost its nitrous oxide.
The researchers found that the wealth effect from real estate — that is, the extent to which home price appreciation juices consumer spending — has been cut in half since the mid-2000s:
Source: Dallas Fed