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.

Official data misses a key driver of consumer strength: a "stealth" wealth transfer from Boomer parents to their adult children. This support, covering big-ticket items like vacations and childcare, frees up income and explains consumer resilience despite low official savings rates and lackluster income growth.

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.

Despite numerous headwinds like high inflation and rising interest rates, consumers have continued to spend. This suggests a potential structural shift where consumers, fueled by wealth gains, are more willing to power through challenges by drawing down savings rather than cutting back.

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 US personal savings rate fell to a dangerously low 2.6%. This reflects households drawing down savings to maintain spending amidst high inflation, a clear sign of financial stress. Such a low rate suggests current consumption levels are unsustainable without a rebound in real income.

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.