Emboldened by the strongest economy in at least 30 years, consumers have been spending more and saving far less. But some economists think the wobbly stock market may soon force changes.

Falling inflation, low unemployment, and especially the bull market in stocks have supercharged consumer confidence and helped push their spending to record levels over the past three years.

At the same time the savings rate has fallen to a notable low. Recently the government refigured the annualized rate at just 0.6% of disposable income in the second quarter, versus 3.5% in 1994, before the run-up in stock prices began. Federal Reserve data paint a similar picture.

The upshot is that the wealth gains from the doubling of stock prices between 1995 and mid-July propelled spending and depressed savings more than previously believed, according to James Glassman, chief economist at Chase Securities Inc., a unit of Chase Manhattan Corp.

Indeed, he and other economists at Chase said the slide in the savings rate was about three times what experience would have indicated. Consumers have been spending "a much larger proportion of their wealth than previous generations of consumers."

The moribund savings level can be seen as a sign of robust economic times, reflecting "plentiful job opportunities and booming confidence," the Chase economists said. In sharp contrast, the savings rate in economically depressed Japan is soaring.

On the flip side, however, the paltry savings rate signals that consumer spending almost surely cannot grow at the hot pace of the last several years-and thus neither can the economy.

"The average American currently saves nothing from current income," the Chase economists noted. Accordingly, sustained spending growth at the pace of the past year, or even the past six months, would require Americans to begin dissaving, that is, spending their savings or incurring more debt for current expenses.

So spending is almost certainly due to slacken no matter what the stock market does. But the behavior of the market dictates whether the slowdown will be gradual and benign, or a more dramatic economic event.

Norwest Corp. chief economist Sung Won Sohn calculated in June, with the Dow Jones industrials only a few weeks from their July 17 peak, that U.S. household net worth in equity was $13 trillion at March 31. That was up $2.6 trillion from a year earlier and $10 trillion from the 1990 recession trough.

About 4% of the rise in net worth has translated directly into consumption, he said. And that "wealth effect" has in turn boosted consumer spending by 27% and overall economic growth by 19%.

Assuming a 15% correction in the stock market and applying the wealth effect multiplier, the Norwest economist calculated that household net worth in equity "could dip by $2 trillion, shaving $80 billion, or 20%, from consumer spending."

Obviously, a correction of this degree "would have a significant impact on economic growth," he said.

The Chase economists noted that households have spent more and saved less because the bull market in stocks expanded financial net worth-the market value of households' financial assets, minus liabilities other than mortgage debt-to a record level in relation to disposable income.

The impressive capital gains on household stock portfolios have substituted for saving out of current income. Meanwhile, tangible net worth-the value of real estate and other tangible assets, minus mortgage debt-has been relatively steady as a proportion of income.

A stock market correction or bear market, then, could have a more exaggerated effect on consumer spending, and on the economy, than ever before.

Based on historical evidence, the Chase economists said, a 10% sustained decline in the stock market would be expected to reduce real economic growth by half a percentage point over the course of a year.

But this may not be a good guide. The tendency of consumers to spend a larger fraction of their wealth gains than in the past "suggests that any stock market drop would produce an exaggerated response by the consumer," the Chase economists said.

Why? Having spent exuberantly on the basis of the market's wealth effect for several years, consumers faced with a weak market might suddenly want to raise savings out of that same wealth.

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