Rebound in US household wealth highlights COVID-19 inequalities
Full recovery of household wealth comes as layoffs remain widespread, signalling growing inequality.
Household wealth in the United States 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 even as tens of millions of people endured job losses and squeezed incomes.
The Federal Reserve said on Monday that US households’ net worth jumped nearly seven percent in the April-June quarter to $119 trillion. That figure had sunk to $111.3 trillion in the first quarter, when coronavirus lockdowns battered the economy and sent stock prices tumbling.
Since then, the S&P 500 stock index – a proxy for the health of US retirement and college savings accounts – has regained its record high before losing some ground this month. The tech-heavy Nasdaq Composite Index has soared more than 20 percent this year.
The full recovery of wealth even while the economy has regained only about half the jobs lost to the recession spurred by the coronavirus pandemic underscores what many economists see as the US’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 percent 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 figures are available. The top one percent owned 31 percent.
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 $5.7 trillion, the Fed said. Home values grew $500bn.
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 $1,200 checks and $600 in extra 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 percent to $1.8 trillion. Savings accounts rose 6.1 percent to $11.2 trillion.
Federal Reserve Chairman Jerome Powell has repeatedly expressed concern about widespread inequality in the US economy and last week said it is likely inhibiting growth.
“Those are things that hold back our economy,” Powell 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.”
Yet many analysts say the Fed’s policies have inadvertently contributed to inequality by disproportionately benefiting stockholders.
The central bank has cut its benchmark short-term interest rate to near zero and is buying about $80bn in Treasurys a month. Both moves have kept rates on government bonds ultra-low, thereby encouraging investors to plow money into stocks and boosting share prices.
The Fed has also bought about $12bn in corporate bonds and exchange-traded funds made up of corporate debt. Those purchases are intended to ensure that the corporate bond market functions smoothly and that large corporations can borrow by issuing debt.
Its purchases have been relatively small relative to the size of the overall market. But the Fed’s actions have restored confidence in the bond market and enabled large US companies to embark on a borrowing binge.
The Fed’s report on Monday showed that business debt jumped 14 percent in the second quarter, after an even bigger rise of 18.4 percent in the first quarter.
Amanda Fischer, policy director at the Washington Center for Equitable Growth, a progressive think-tank, said that the Fed could have required those companies whose bonds it bought to keep all their workers. Instead, for example, the Fed has purchased bonds issued by ExxonMobil, yet that company has said it is considering layoffs.
“The Fed did have the opportunity to attach conditions to the lending, and they chose not to,” Fischer said.
Powell and many economists have said that another financial rescue package from Congress would boost the economy and help narrow inequality, because Congress can provide additional direct payments and more jobless aid. Yet there are no signs of a deal in Congress.
The data the Fed issued on Monday pointed to huge gaps in wealth along racial lines. White households owned nearly 85 percent of total wealth at the end of March. African-American households owned just 4.4 percent, while Latino households owned 3.2 percent.
Much smaller financial resources mean that many nonwhite households are forced to cut spending sharply after a job loss or reduction in incomes. Research by economists Peter Ganong and Damon Jones at the University of Chicago found that Black Americans cut spending 50 percent more than whites when faced with the same income losses. Hispanics reduced theirs by 20 percent more.
Even with household wealth at a record high, millions of people face the threat of eviction or going hungry. A Fed report released on Friday found that nearly one-quarter of adults said their family had received some form of economic help since the pandemic began, whether from unemployment benefits, food stamps or donations of groceries from charitable groups.
Nearly 23 million adults live in households in which there was not enough to eat at some point in the past seven days, according to the Census Bureau’s Household Pulse survey.
The rebound in wealth “is not enough to say that the economy is back,” Jones said. “People have lost their jobs, they’re working less because it’s dangerous and risky and their hours have been cut.”