Importantly, the same downward pressure on profits and the heightened sense of risk that have restrained investment have also lowered equity prices and reduced household wealth. We can expect the decline in wealth that has occurred over the past year to restrain household spending relative to the growth of income, just as the previous increase gave an extra boost to household demand.
Furthermore, most survey measures suggest consumer sentiment, while having stabilized recently, remains fragile. More recent concerns have arisen with respect to possible effects of higher gasoline prices on the economy. A rise in these prices this summer, as many fear, would, as always, act as a tax on households' incomes and spending, hardly welcome in today's context.