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U.S. Household Wealth Surged Despite COVID-19

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What You Need to Know

  • Total assets fell to $127.8 trillion when financial markets crashed in March 2020, but rebounded through stimulus and relief packages.
  • The biggest contributors to financial wealth gains were corporate equities and mutual funds.
  • Wealth accumulation across income levels means pent-up spending ammunition among households as the economy reopens.

U.S. household wealth grew by $20 trillion since the fourth quarter of 2019, according to an analysis by ING’s chief international economist, James Knightley. From the equity market trough in March last year, wealth has increased $26 trillion thanks to massive support from both the federal government and the Federal Reserve.

Despite the lockdowns brought on by the pandemic, the U.S. household balance sheet  improved dramatically to $154.2 trillion in the first quarter of 2021, Knightley wrote, citing Federal Reserve Flow of Funds data. 

Total assets at the end of 2019 stood at $134.3 trillion, then plummeted to $127.8 trillion at the end of March 2020 when financial markets crashed, but rebounded on the back of stimulus packages and relief payments.

Non-financial assets, mainly real estate, now total $44.6 trillion, while financial assets total $109.6 trillion. Here are the largest categories: 

  • Pension entitlements: $29.9 trillion.
  • Corporate equities: $28.2 trillion.
  • Small-business equity: $13.1 trillion.
  • Mutual funds: $11.6 trillion.
  • Time and savings deposits: $11.2 trillion.

Liabilities are “just” $17.2 trillion, Knightley wrote, and are primarily mortgage and consumer loans, which leaves household net worth at $136.9 trillion. This is equivalent to 620% of U.S. GDP. 

The Rich Get Richer

Knightley’s analysis found that the biggest contribution to financial wealth gains came from corporate equities and mutual funds, mainly owing to resurging risk appetite and equity markets rising on unprecedented Federal Reserve and government stimulus. 

These things also account for strong performances for pension and life insurance funds, he said. Conversely, the value of debt security holdings has actually fallen. 

Higher-income and already wealthy households will be the main beneficiaries of the increases in wealth since they will have been heavily invested in these asset classes already, according to Knightley. 

Moreover, higher-income and wealthier households spend proportionately more on services and “experiences” — travel, eating out, theater, cinema — which pandemic containment measures curtailed. 

All this likely led to a significant increase in unplanned saving among wealthy households, with the money instead put into financial and physical assets. 

Knightley also identified a substantial increase in wealth in cash, checking and savings deposits. Given extraordinarily low interest rates, this was overwhelmingly due to people putting more money into these accounts — up $2.7 trillion since the first quarter of 2020 and up $3.2 trillion since the fourth quarter of 2019. 

Low-Income Households See Improvement, Too 

Lower-income households also contributed significantly to the increase in wealth, Knightley found. Government stimulus checks of $1,200, $600 and $1,400 combined with uprated and extended unemployment benefits contributed to huge increases in household incomes over the past 14 months. 

He noted that an NBER paper calculated that 69% of unemployment benefit recipients actually earned more money being unemployed than when they were working. Median recipients received 134% of their previous after-tax compensation. 

With opportunities for spending being limited because of pandemic restrictions, it is likely that not all of these income gains have been spent, Knightley wrote. Indeed, outstanding credit card balances have been paid down and are currently at four-year lows, according to monthly data he analyzed. 

He said more savings will likely have been accumulated as well. 

Spending Ammunition 

Consumer confidence has strong underpinnings as employment gradually comes back and evidence of higher income growth accrues, Knightley wrote. 

People will have more options to spend money as the economy reopens, with the massive accumulation of wealth only adding to the potential spending ammunition of the household sector. 

Knightley said that in an environment where supply constraints persist, one can argue that the demand growth in the economy is likely to outpace the supply-side capacity. And this is another argument for inflation staying higher for longer.