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US consumer spending growth patterns have shown an increasing divergence over the past year, with consumption in discretionary categories pulling ahead while spending on staples stagnates. These differences have been amplified by the spike in energy prices this year, but are primarily the result of a slowing labour market leading households to depend on increasing values of homes or stock portfolios to support their spending, a link known as the wealth effect. Today’s chart extends this framework into the future, breaking down the expected impact of income, wealth effects, liquidity, job security and the propensity to spend (rather than save) on the outlook. Interestingly, our models expect labour income and job security concerns to no longer act as drags on spending next year. In addition, we expect spending to remain 1.4% above its long-term trend, with wealth effects continuing to act as the primary tailwind.