Record household wealth masks ‘worrisome’ trend: experts

WASHINGTON A rising stock market lifted U.S. household wealth to a record US$106.9 trillion in the AprilJune quarter, the culmination of a decade of economic recovery but a gain that is concentrated largely among the most affluent.

The value of Americans’ stock and mutual fund portfolios rose US$800 billion last quarter, while home values increased US$600 billion, the Federal Reserve said Thursday. Total household wealth is now 2.1 per cent higher than in the first quarter, when it was US$104.7 trillion.

The Fed’s report came on a day when a wave of buying on Wall Street sent U.S. stocks surging, lifting both the Dow Jones Industrial Average and the Standard & Poor’s 500 to all-time highs.

Household net worth reflects the value of assets like homes, bank accounts and stocks minus debts like mortgages and credit cards. The data aren’t adjusted for inflation or population growth. They also don’t reflect the experiences of most U.S. households. Stock market wealth has been flowing disproportionately — and increasingly — to the most affluent households. The richest one-tenth of Americans own about 84 per cent of the value of stocks. That’s up from 81 per cent just before the Great Recession began in late 2007.

That trend is concerning to some economists, who regard such sizable disparities in wealth as unhealthy for an economy. When lower- and middle-income people don’t share much in overall prosperity, many are forced to absorb more debt and take other financial risks. “I would be happy in a world where we saw big stock increases — if stocks were more broadly distributed across the population,” said Josh Bivens, director of research at the liberal Economic Policy Institute. “The fact that is where most of the gains are going is worrisome.”

In theory, greater household wealth can speed the economy by making consumers feel richer and more likely to spend. But most consumers are spending less of their wealth than they did before the recession began, economists have found.

Americans are saving nearly seven per cent of their incomes, according to Commerce Department figures. That figure has remained fairly steady for five years even as the stock market has set new highs and average home prices have increased faster than most people’s wages.

The rising concentration of wealth among affluent and educated Americans is another factor why the nation’s increased net worth isn’t accelerating the pace of consumer spending. Richer households are less likely to spend their wealth gains than middle- or lower-income households are.