Consumer spending resilience is not broad-based. It's largely driven by the top 10% of income earners (making over $275k), who now account for almost 50% of total spending. This is the only cohort whose spending has outpaced inflation since the pandemic, making the wider economy highly sensitive to their behavior.

The resilience of consumer spending, despite weak employment growth, is driven by affluent consumers liquidating assets or drawing down cash. This balance sheet-driven consumption explains why traditional income-based models (like savings rates) are failing to predict a slowdown.

A significant gap exists between weak real income growth (~1%) and stronger real consumption (~2%). This suggests consumers are funding their spending through the wealth effect of a rising stock market, creating a fragile dependency on equity performance.

Beneath the surface of AI-driven growth, the US consumer is strained. Real income growth is flat, and spending is sustained only by a rapidly falling savings rate, now at pre-2008 crisis lows. This indicates the economy is more fragile than headlines suggest and vulnerable to a spending pullback.

The link between asset prices and spending, which weakened after 2008, has restrengthened to levels last seen in the 1990s tech bubble. Surging stock prices are directly fueling consumption, explaining why spending remains robust despite near-zero real income growth. This makes the economy highly vulnerable to a market correction.

Consumer resilience is propped up by a 'three-legged barstool': 1) 'Stealth' wealth transfers from Boomer parents, 2) significant wealth effects from a decade-plus market expansion, and 3) a large cohort of homeowners who no longer have a mortgage, freeing up substantial cash flow.

The personal saving rate has dropped dramatically to 3.5%, fueled by the stock market wealth effect. This is historically low and below equilibrium, suggesting that consumers cannot continue to fuel economic growth by saving less and the current spending pace is unsustainable.

Aggregate US consumer strength is misleadingly propped up by the top 40% of upper-income households, whose spending is buoyed by appreciating assets. This masks weaknesses among lower- and middle-income groups who are more affected by inflation, creating a narrowly driven economic expansion.

Higher interest rates on government debt are creating a significant income stream for seniors, who hold a large amount of cash-like assets. This cohort's increased spending power—either for themselves or passed down to younger generations—acts as a counterintuitive fiscal stimulus, offsetting the intended tightening effects of the Fed's policy.