(The opinions expressed here are those of the author, a

columnist for Reuters.)

By Jamie McGeever

ORLANDO, Florida, March 18 (Reuters) - It's widely

believed that the biggest issue with U.S. consumers' balance

sheets is indebtedness, but the Federal Reserve's latest

financial accounts - and the volatile stock market - suggest

that larger risks may be on the other side of the ledger.

This seems counterintuitive. Household wealth has never been

higher, rising some $163 billion in the fourth quarter of last

year to a record net $169.4 trillion, as gains in stocks and

'other' assets more than offset declines in bonds and home

prices, according to the Fed's latest report.

And when looking at assets as a share of gross disposable

income, considered a more accurate barometer of wealth,

households have rarely ever been richer.

But cracks are starting to appear in the edifice.

Households directly or indirectly owned $56 trillion worth

of stocks at the end of last year, a record amount. As a share

of total gross wealth, equity exposure is at a historically high

level, and vulnerable to a significant decline if markets slide.

The market is wobbling. With only two weeks left of the

current quarter, the S&P 500 is heading for a fall of 4% and the

Nasdaq is down 8%. Some $5 trillion has been wiped off the U.S.

stock market in the last month, the sharpest dose of wealth

destruction since the bear market of 2022.

This has potentially profound implications for a

consumption-based economy where the top income decile - the

owners of nearly all of the country's financial assets - is

responsible for roughly half of the nation's consumer spending.

So while it's famously been said that "the stock market is

not the economy," that may not be strictly true.

Oxford Economics' chief U.S. economist Ryan Sweet - one of

many who have recently cut their 2025 growth forecasts - has

warned that household net wealth matters more for the consumer

spending outlook than ever before.

"A stronger wealth effect has proven to be a tailwind for

overall consumer spending, but it could just as easily turn into

an outsize drag in the event of a bear market," he wrote last

week.

HIGH WATER MARK

He's right. One of the most remarkable statistics in recent

years is that the U.S. economy has grown 50% in nominal terms

since the post-pandemic low in 2020, less than five years ago.

Household wealth has played a key role in this via a

virtuous cycle of strong consumer spending, high corporate

profits, soaring stock markets and resilient economic activity.

But what if one part of that cycle - asset prices - has

reached its high-water mark?

What was a virtuous cycle when asset prices were rising

could quickly flip to a vicious cycle when they fall. We may

already be seeing the beginnings of this. Consumer sentiment is

now at a two-and-a-half-year low, University of Michigan surveys

show, and tepid monthly retail sales reports are offering

reasons to be concerned.

ON THE OTHER SIDE

Meanwhile, the other side of the household balance sheet is

actually in relatively good shape.

Total nominal debt fell slightly in the fourth quarter to

$20.79 trillion, the first decline in nearly five years. And if

you exclude a few quarters in the pandemic distorted by

government stimulus checks, debt as a share of gross disposable

income is now the lowest since 1999. Applying the same criteria,

mortgage debt - households' biggest single debt burden - as a

share of GDI is the lowest since 1998.

So overall, debt levels appear relatively low and stable,

while asset values are high and primed for a fall.

(The opinions expressed here are those of the author, a

columnist for Reuters.)

(By Jamie McGeever;)