Koesterich also argues that even if we see some acceleration in borrowing as income growth rises, older and more indebted consumer is unlikely to borrow at the pre-crisis rates. Given the pace of household debt accumulation converges to nominal income growth, it would suggest a 1 percentage point reduction in the rate of household spending, compared to the historical average.
“The obvious way out of this dilemma is faster income growth,” Koesterich added. “Not surprisingly, income growth has historically been the single largest driver of changes in consumption.”
Consumer Discretionary Select Sector SPDR
For more information on the consumer sector, visit our consumer discretionary category.
Max Chen contributed to this article.