Michelle ThompsonPropelled by a rebounding stock market and increasing property values, the wealth held by households in the United States surged to an all-time high of $154.3 trillion in the second quarter of this year, as per official government data.
The net worth of consumers has now fully recovered from the recent decline driven by inflation-related decreases in stock prices and real estate assets.
Between the conclusion of March and the close of June, household and nonprofit net wealth expanded by $5.5 trillion, which represents a 4% increase, according to the data released by the Federal Reserve on Friday. This builds upon a $3 trillion increase during the initial three months of the year. It’s important to note that these figures are not adjusted for inflation.
The primary driver behind this increase in wealth was the remarkable rise in the value of Americans’ investments in the stock market, which saw a growth of $2.6 trillion during the quarter. Additionally, the worth of real estate holdings, including home values, expanded by $2.5 trillion.
At present, household wealth exceeds the previous record of $152 trillion set in early 2022 by approximately $2 trillion. This surplus should provide consumers with a buffer to withstand potential future economic challenges and the possibility of an increase in unemployment.
The Federal Reserve responded to surging inflation by aggressively raising interest rates, starting in March 2022, at the quickest pace seen in four decades. These rate hikes had a significant impact on financial markets, causing a decline in the value of stock holdings, cooling the housing market, and raising concerns about the potential onset of a recession.
“Despite the recent increase, wealth has remained relatively stable over the past year, limiting its impact on consumer spending,” economists at Moody’s Analytics noted in a report published on Friday. “Moreover, the volatility in wealth since the beginning of the pandemic serves as a reminder to households of how precarious any gains can be.”
The stock market’s resurgence has mirrored the overall performance of the US economy. Goldman Sachs recently revised its assessment of the likelihood of a US recession in the next 12 months, reducing it to just 15% from the earlier estimate of 35% earlier this year. There is growing optimism for a soft landing scenario, where inflation is controlled, and a recession is averted.
“I am quite optimistic about that prediction,” said Treasury Secretary Janet Yellen in an interview with Bloomberg News on Sunday, when asked about the prospects of a soft landing. “I believe it’s safe to say we are following a path that aligns with that scenario.”
Despite the improved economic situation, the White House is not receiving widespread credit from the public.
An astonishing 58% of the public believes that President Joe Biden’s policies have had a detrimental effect on economic conditions in the United States, as indicated by a CNN poll published last week. This figure has risen from 50% recorded last autumn.
Similarly, a Wall Street Journal poll released on Monday indicates that 63% of voters are dissatisfied with how the president has managed the issue of inflation.
There are noticeable indications that some Americans are encountering financial difficulties. Even as household wealth reached a historic high in the second quarter, credit card debt has surpassed $1 trillion for the first time, as reported by the New York Federal Reserve.
Moreover, the incidence of new credit card and car loan delinquencies has surpassed pre-Covid levels, with Macy’s expressing concern about an increase in customers who are unable to make their credit card payments.
JCPenney CEO Marc Rosen recently shared with CNN that the company’s core customers, often working-class families, are increasingly relying on credit cards, falling behind on their bills, and shifting to more affordable private label brands.
“Our customers are the working families of America—teachers educating our children, construction workers building our homes, and medical professionals caring for us,” Rosen noted. “And this customer base is facing a more challenging economic environment.”
