Observing that, over the past half century, consumer spending has amounted to about 90 percent of income, it might appear that income is largely sufficient to explain consumption. However, econometric evidence suggests that such numbers may be deceptive.
Wealth by itself now appears to explain about one-fifth of the total level of consumer outlays, according to the Board’s large-scale econometric model, leaving disposable income and other factors to explain only four-fifths of consumption. Indeed, if capital gains have any effect on consumption, the propensity of households to spend out of income must be less, possibly much less, than 90 percent.