Why US Household Expenditures are Strong: The Pros and Cons of Asset Price-dependent Spending Behavior

After a decade of expansion, the US economy entered recession in March 2001. What characterizes the latest recession more than anything else is the fact that corporate sector demand, as represented by capital investment, is undergoing a deeper correction than seen in past recessions, while household sector spending (consumption expenditures and housing investment) is unusually strong. Because of this, the recession itself has been extremely shallow.