Investment-related spending appears to be stabilizing “from an artificially high level” reached in the market boom that preceded the recession, said Robert Dye, chief economist for Dallas-based Comerica Bank. In addition, there may be some “downward pressure” on the rate that companies are charging for financial services fees, he said.
“There certainly was a speculative environment in 2006 and 2007 that encouraged activities like day trading that boosted this rate to an unsustainable level,” Dye said. This share of spending may be normalizing now, which “could be a fairly positive outcome,” he said.
Investment spending hasn’t fallen below its 23-year average, which shows “people aren’t stuffing money in the mattress or burying a jar in the backyard,” he said.
Since January 1990, spending on commissions, investment advice and custodial fees has represented about 1.3 percent of total personal consumption, the same as February’s level, data from the Commerce Department show. Such spending peaked at 2 percent in March 2000, the same month the S&P 500 hit what was then an all-time high of 1527.46.
Health Spending
While money allocated to financial services has contracted since 2007, other expenses have increased. Health-care expenditures -- including outpatient services and hospitals -- accounted for 16.3 percent of total personal consumption in February, up about 2 percentage points from the 10-year prerecession average, Commerce Department data show.
Still, the equity rally so far this year could entice more individuals to return to the market, causing the share of spending on financial services to “blip up” again, Hoffman said. The S&P 500 has risen 11 percent since Dec. 31.
Even amid the market’s recent gains, the fear of losing a lot of money again continues to leave many consumers on the sidelines, Sri-Kumar said.
“People need to get a good rate of return on their investments to support future spending needs and they’re not going to get that from their bank accounts or fixed income,” he said. “They need to be encouraged to come into the equity market again.”