WASHINGTON (AP) — Americans’ household wealth rebounded last quarter to a record high as the stock market quickly recovered from a pandemic-induced plunge in March. But the gains flowed mainly to the most affluent households even as tens of millions of people endured job losses and shrunken incomes.
The Federal Reserve said today that American households’ net worth jumped nearly seven per cent in the April-June quarter to US$119 trillion. That figure had sunk to US$111.3 trillion in the first quarter, when the coronavirus battered the economy and sent stock prices tumbling.
Since then, the S&P 500 stock index has regained its record high before losing some ground this month. It was up 2.8 per cent for this year as of last Friday. The tech-heavy Nasdaq has soared more than 20 per cent this year.
The full recovery of wealth even while the economy has recovered only about half the jobs lost to the pandemic recession underscores what many economists see as America’s widening economic inequality. Data compiled by Opportunity Insights, a research group, show that the highest-paying one-third of jobs have almost fully recovered from the recession, while the lowest-paying one-third of jobs remain 16 per cent below pre-pandemic levels.
The wealth data “highlights the inequalities in the recovery in the sense that high-income workers not only have jobs that for the most part have come back; they also have savings that have continued to grow,” said John Friedman, an economist at Brown University who is co-director of Opportunity Insights.
The richest one-tenth of Americans owned more than two-thirds of the nation’s wealth, according to Fed data through the end of March, the latest period for which data are available. The top 1 per cent owned 31 per cent.
The small financial cushion for most households could force many consumers to cut back on spending in the coming months, now that government financial aid such as enhanced unemployment benefits has expired. Any significant such cutback in spending would, in turn, weaken the economy.
Household wealth reflects the value of Americans’ homes, plus bank accounts, stocks, bonds and other assets minus mortgage debt, auto loans, credit card debt and other borrowing. (The figures are not adjusted for inflation.)
During the April-June quarter, the value of households’ stock portfolios rose US$5.7 trillion, the Fed said. Home values grew US$500 billion.
Americans also sharply increased their savings last quarter, likely reflecting a cutback in spending by wealthier consumers nervous about the virus’s threat to the economy. The federal government’s financial assistance in the form of US$1,200 checks and US$600 in weekly unemployment benefits also likely allowed some lower-income households to save more. That government assistance has since expired.
The amount of money in checking accounts jumped 33 per cent to US$1.8 trillion. Savings accounts rose 6.1 per cent to US$11.2 trillion.
Federal Reserve Chair Jerome Powell has repeatedly expressed concern about the widespread inequality in the US economy and last week said it is likely inhibiting growth.
“Those are things that hold back our economy,” he said at a news conference. “If we want to have the highest potential output and the best output for our economy, we need that prosperity to be very broadly spread.”
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