Why US Household Net Income Hit A Record In the 3rd Quarter This Year

Rising home prices and a buoyant stock market is mostly what has driven the rise in household net worth, meaning that most of the benefits have flowed to the already wealthy. JL

Paul Kiernan and Eric Morath report in the Wall Street Journal:

The net worth of U.S. households rose to a record in the third quarter as the value of stock portfolios and real estate surged, highlighting the skewed nature of an economic recovery that has disproportionately benefited wealthier Americans.“We’ve seen home prices rise, market prices for tradable instruments rise and savings increase because people haven’t been able to spend money on everything from sporting events to weddings.” home prices in major metropolitan areas across the nation, rose 7% . Lower-earning Americans, who are less likely to own homes or stock, were more likely to lose a job this year,

The net worth of U.S. households rose to a record in the third quarter as the value of stock portfolios and real estate surged, a Federal Reserve report showed, highlighting the skewed nature of an economic recovery that has disproportionately benefited wealthier Americans.

Household net worth rose 3.2% in the third quarter from the second quarter to $123.52 trillion, the Fed said Thursday. Household debt rose 5.6% to $16.4 trillion, its fastest pace in at least two years.

Stock-market gains have driven much of the increase in net worth. The S&P 500 index and Dow Jones Industrial Average gained 8.5% and 7.6%, respectively, in the July-September period, building on even bigger advances in the second quarter.

Many economists have described a K-shaped recovery from the coronavirus-induced shock early this year. More affluent Americans are doing well, while millions of others—including lower-paid workers in vulnerable jobs in retailing and restaurants—are seeing their incomes and net worth decline.

“We’ve seen home prices rise, market prices for tradable instruments rise and savings increase because people haven’t been able to spend money on everything from sporting events to weddings,” said Constance Hunter, chief economist at KPMG LLP. “But those gains skew to upper income people.”

Lower-earning Americans, who are less likely to own homes or stock, were more likely to lose a job this year, she said, as the pandemic downturn caused widespread layoffs at restaurants, hotels and retailers.

“It’s a vicious cycle,” Ms. Hunter said. “Not only were lower-income households more impacted, they also were less likely to have the resources to draw upon to support their families.”

Only about 15% of American households held stocks directly at the end of 2019, according to Fed data. About half of households owned retirement accounts, such as 401(k) and IRA accounts, with a median value of $65,000.

A separate report from the Labor Department Thursday showed that the number of workers seeking unemployment benefits climbed sharply to 853,000 last week, as the broader labor-market recovery cools.

The U.S. labor market has regained only 12 million of the 22 million jobs lost at the onset of the pandemic, and unemployment benefits are set to expire at the end of the year for many workers.

A booming residential real-estate market has also boosted household balance sheets. Home-price gains have been driven by record-low interest rates and many people who are able to work from home moving to the suburbs from more densely populated cities.

The S&P CoreLogic Case-Shiller National Home Price Index, which measures average home prices in major metropolitan areas across the nation, rose 7% in the year that ended in September, up from a 5.8% annual rate the prior month. September marked the highest annual growth rate since May 2014.

However unevenly distributed, Ms. Hunter said rising wealth overall is likely to have a positive effect on the broader economy next year, when a Covid-19 vaccine is expected to be widely available. Greater wealth means people have more resources to start businesses and will be more willing to spend on vacations, dinners out and other experiences.

The Fed report, known as Flow of Funds, provides only a broad overview of household finances. Household net worth consists of the difference between assets—such as bank accounts, stock investments and real estate—minus liabilities such as mortgage balances and consumer debt.