ORLANDO, Florida, Oct 6 (Reuters) - The U.S. government

shutdown is delaying key economic data releases, thickening the

fog of uncertainty for policymakers and businesses, but they

needn't worry. They still have access to one of the best

economic indicators: the stock market.

That may sound flippant, but the connection between U.S.

equity prices, consumer spending and economic growth is

strengthening. By some measures, it has never been stronger.

This helps explain one of economists' big 'misses' this

year: stubbornly resilient U.S. consumption. They seem to have

underestimated the powerful, positive feedback loop of

gravity-defying strength on Wall Street and consumer spending,

the so-called wealth effect.

U.S. households have rarely been richer and have never had

so much of their wealth in the stock market. The epic rally in

equities is therefore making a lot of Americans feel a lot

richer, increasing their propensity to spend. This is

particularly true of the wealthiest households, who account for

an outsized share of consumer spending.

The Federal Reserve's national financial account figures for

the second quarter, the latest available, are revealing on this

measure.

Total household net wealth rose by $7.09 trillion, the

third-largest increase on record, with rising equity prices

contributing an eye-popping $5.51 trillion to gains in household

wealth during the period. This reflects the fact that equities'

share of total household assets has risen to a record 31%, or

more than 45% of households' financial assets, another record.

Considering the sheer size of these figures, it's reasonable

to assume that the 'wealth effect' is one major reason why

Americans are continuing to spend.

BIG SPENDERS

Economists are questioning the resilience of this

consumption, however, as the U.S. labor market is showing signs

of creaking, if not buckling. Job growth has essentially ground

to a halt, and while this may partly be a consequence of reduced

immigration, it still isn't something typically associated with

robust household consumption.

Yet economists at TD Securities - who share concerns about

the weakening U.S. job market - still expect consumer spending

to accelerate in the third quarter to a 3.2% annualized rate,

from 2.5% in the second, raising their GDP growth forecast to

2.8% from 2.2%.

What explains this seeming incongruity?

Namely, the rich, who largely thanks to roaring equity

markets, keep getting richer.

Consumption may always be driven by the wealthy, but that's

especially true today. The richest 10% of Americans account for

around half of all consumer spending, which itself represents

around 70% of all U.S. economic activity.

And the richest of all - the top 0.1% of households - saw

their share of total household wealth rise to a record 13.9% in

the second quarter, a period in which the S&P 500 rose 10.5% and

the tech-dominated Nasdaq rose 17.5%.

These indices rose another 8% and 11%, respectively, in the

third quarter, indicating that households felt even richer than

they did in the second. Rich enough to keep on spending

liberally?

The answer is likely "yes." Economists at Goldman Sachs

reckon that positive wealth effects may be strong enough to

support consumer spending growth over the next year, especially

after it gets a boost from the Trump administration's tax cuts.

Goldman estimates quarterly annualized consumption growth

was around 0.3 percentage points in the July-September period

and will be around 0.2 percentage points over the next year.

That's assuming equity prices rise in line with nominal GDP

growth. If equity markets keep booming, consumption could

eclipse economists' expectations yet again.

REASONS TO BE CAUTIOUS

Of course, the 'wealth effect' is no guarantee of an

uninterrupted consumption boom. While actual spending remains

fairly healthy, consumer confidence is low, near the lowest on

record, in fact, according to the University of Michigan's

sentiment index. But that's the confidence of the average

consumer, not the richest who keep seeing their stock portfolios

appreciate.

And as TS Lombard's Dario Perkins points out, the savings

rate should fall when net worth rises, as consumers take out

cash and spend. That's not happening now - the savings rate is

low at around 5%, but it has barely moved for the last few

years.

Finally, stocks could stop defying gravity. Claims that

we're reaching a market top have been growing lately. But as

long as optimism about artificial intelligence remains elevated

and U.S. tech companies continue recording strong earnings, that

long-awaited correction will stay just out of reach.

That's good news for U.S. equity holders, and, on balance,

the economy as a whole.

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

columnist for Reuters)