Why did the stock market crash of 1929 reduce consumer and business spending?

The stock market crash of 1929 reduced consumer and business spending primarily by generating widespread financial uncertainty and eroding consumer confidence.12

The crash impacted spending through several key mechanisms:

• Uncertainty and Pessimism: The financial crisis created significant doubt regarding future income. Consequently, both consumers and firms postponed purchases of durable goods and delayed business investment.1
• Wealth Effect: While the direct loss of wealth from the decline in stock prices was relatively modest, the crash made individuals feel poorer, which discouraged discretionary spending.1
• Psychological Impact: The sudden collapse of the market fostered a general distrust in the economy and financial institutions, leading to a sharp, broad-based contraction in spending.2
• Expectations of Deflation: Following the crash and subsequent monetary contraction, consumers and businesspeople began to expect future price and wage declines. This expectation of deflation made borrowing unattractive, as future profits or wages might be insufficient to cover loan payments, further suppressing investment and consumption.3

These factors collectively caused a drastic decline in aggregate demand, which accelerated the onset of the Great Depression.12