Following the worst year for humanity in at least seven decades, Americans were richer than ever, Fed data out Thursday showed.
I’m speaking about aggregates, of course. For millions of Americans, 2020 was a financial catastrophe from which they haven’t yet (and may never) fully recover.
But thanks to surging equities and home prices, total US household net worth jumped almost $7 trillion in the fourth quarter (figure below).
Stocks obviously ran higher into year end. The S&P jumped 12% in 2020’s final quarter.
Meanwhile, home prices (as measured by the S&P CoreLogic Case-Shiller index) posted one “since 2014” rise after another.
Both of those developments (the inexorable rise in risk assets and soaring housing prices) were helped along and otherwise facilitated by Fed largesse, although clearly, pandemic dynamics contributed to the insatiable demand for homes.
Recently, mortgage rates have begun to rise and affordability is increasingly seen as an impediment for the red-hot housing market.
In the same vein, some parts of the equity market are trading at dot-com multiples, raising questions about the sustainability of the rally. The S&P hit a new record high on Thursday.
During the final quarter of 2020, the value of shares jumped almost $5 trillion, while the value of real estate rose more than $900 billion (figure below).
Mortgage debt rose more than 5% during the quarter, a “solid” encore from a 5.7% annual increase during the previous three-month period.
The 5.6% gain in household net worth counted among the largest in decades (figure below).
Still, not everyone enjoyed the benefits, that’s for sure. In November and December, nearly 400,000 restaurant workers lost their jobs during the winter COVID wave, for example.
At the same time, the number of long-term unemployed continues to rise as a percentage of the total jobless (figure below).
And it goes without saying (or at least it should) that with equity ownership concentrated overwhelmingly in the hands of the rich, the benefits of surging stocks accrued disproportionately.
Even if you were lucky enough to participate in what, to let the headlines tell it, was a banner quarter for America’s households, it’s worth keeping in mind that, relatively speaking, most of us are paupers. Even if we’re millionaires (figure below).
Is this another “mean/median”statistic? What is the number if we take out the top 10%? What is the average per household in the “bottom ” 90%?
Sometimes mean distortion doesn’t matter. It’s clear from all sorts of statistics that the negative financial impacts of the last year have fallen disproportionately on the lower half of the income distribution. Adjusting an increase in HHNW by skimming off the inconveniently outsized gains of the wealthiest (a questionable approach) doesn’t make anything clearer. Nor does it change the complexion of which segments of fthe population are benefitting and which suffering in the current/recently past economy.
Follow the money. Leave the culture wars for later….
When Bill Gates walks into a bar, everyone in the bar, on average, becomes a millionaire. Not trying to get into any culture wars, just trying to figure what the $ 7 trillion amount really does.
How’s the bottom 80% doing? How bad is the damage? To quote Cho en lai wnasked what he thought of the French Revolution “Too soon to tell”