Despite widening public ownership of stocks, most people did not boost their spending as a result of the market boom. To be sure, wealthy households went on a spending spree as their stock portfolios swelled. But lower- and moderate- income families boosted their savings during the 1990s. Those are conclusions of a new working paper by Federal Reserve staff economists.

• Between 1992 and 2000, the wealthiest 20 percent of households drastically reduced their savings by selling stocks and spending the proceeds -- even as the soaring value of their remaining equity holdings greatly increased their wealth.

• The authors estimate that the savings rate of these households dropped sharply from 8.5 percent of disposable income to a negative 2.1 percent over the period.

• But the savings rate for the bottom 40 percent of households rose from around 4 percent in 1992 to more than 7 percent in 2000.

• The authors estimate that the top 20 percent of households accounted for 46 percent of total consumer expenditures last year.

This suggests that unless the stock market moves to even higher ground and stays there, luxury goods, expensive cars and fancy homes are likely to suffer from sagging sales.

Source: Gene Koretz, "Economic Trends: Unraveling the Savings Mystery," Business Week, June 4, 2001; Dean M. Maki and Michael G. Palumbo, "Disentangling The Wealth Effect: A Cohort Analysis Of Household Saving In The 1990s," April 2001, Federal Reserve Board.

For study text http://www.federalreserve.gov/pubs/feds
/2001/200121/200121pap.pdf