Total U.S. wealth continues its upward trajectory, with a 7% gain in Q2 setting a record.
By Manuel Gutierrez, NKBA Consulting Economist
The economy is working for some people — and in a big way.
The total wealth of U.S. households jumped by nearly 7% in the second quarter of 2020, to $119 trillion. This is the largest quarterly increase in wealth ever. It recouped a 6.1% drop from the previous quarter and more. Total wealth in Q4 2019 stood at $118.6 trillion, so the gain since then amounts to $378 billion.
With a few exceptions, including both the 1953-1954 and 1980-1982 economic downturns, household wealth has generally fallen during recessions. On average, the recessionary wealth loss has historically amounted to 1.6% per quarter. By contrast, during economic booms, households have seen their wealth increase at a quarterly average of 2.1%.
The wealth of U.S., households has grown an average of 6.9% annually since 1955. Despite the pandemic disruptions, the second quarter of 2020 still saw a 4.4% increase in wealth over the previous year.
The wealth formula is derived by determining total assets, currently $135 trillion, and subtracting liabilities ($10.6 trillion). The bulk of the liabilities, nearly two-thirds of the total, are in home mortgages. The other major component is consumer credit debt, which accounts for a quarter of all liabilities.
On the assets side, most are in the category of financial assets. Nearly one-quarter of total wealth, or 24%, is from corporate stocks. An additional 12% of financial assets are in the form of “defined pension plans” with employers. The category of “Other,” at 28%, includes items such as deposits and other financial assets.
The distribution of all assets is displayed in the chart below.
Household non-financial assets consist of two types: Real Estate and Consumer Durables. Real estate is the larger one, amounting to $30.8 trillion. As can be seen in the chart, real estate represents nearly one-quarter of all household wealth, with consumer durables adding 4%.
Historically, real estate wealth has increased at an annual average of 7.9%. However, since the turn of this century, it has averaged a more modest 5.4%. It should be noted that, as illustrated in the final chart, the lower rate was caused by the substantial loss of $8.6 trillion of wealth between 2007 and 2012. Household wealth dropped by 12% over those five years.
Since 2012, when annual growth in real estate wealth turned positive, it has increased at a solid 6.6% rate. This is good news for the K&B industry, as growing real estate wealth in the hands of consumers is likely to result in a commensurate increase in investments to maintain and improve the value of that wealth — which translates into stepped-up home improvement project activity.
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