PLANO, Texas—Household wealth declined to $135.3 trillion as of Sept. 30 from $135.8 trillion at the end Q2, the third consecutive quarter household wealth has declined, a new analysis shows.
“During that period, an index that covers 95% of the market capitalization of U.S. stocks lost almost $2 trillion in value on worries about stubbornly high inflation and the Fed's outsized interest rate increases to try and bring it to heel,” wrote Brian Turner, president and chief economist with Meridian Economics, in his blog.
As the Fed has aggressively raised rates the central bank has been relying on consumers to pull back on spending to help lower inflation, Turner said.
“U.S. households have lost nearly $7 trillion in net worth this year, almost entirely due to the stock market's 2022 swoon,” Turner stated, “But that's after a jump in household wealth to a record $150.1 trillion at the end of last year juiced by government financial relief during the worst of the COVID-19 pandemic.”
Household Deposits
All the federal relief funds have, not surprisingly, led to higher than usual household savings, although all those funds squirrelled away are slowly flowing out.
“Household cash stockpiles - as measured by the sum of balances in checking accounts, savings and time deposits and money market funds - were effectively unchanged in the third quarter at nearly $18.4 trillion. But these household deposits are down about $134 billion from its peak in the first quarter.”
Consumer checking account and money market balances both ticked higher but were offset by a drop in savings and time deposits, Turner wrote.
“All of the three major groups of assets - cash, real estate and consumer durable goods - have held their ground this year although with wage growth (5.0%) continuing to trail consumer inflation (7.7%), consumers are experiencing a dilution in purchase power and the elevated pace on inflation is causing many to dig deeper into their bank accounts to cover everyday expenses,” Turner said.
Rising Debt
In addition, he said as consumers have been using more of their cash reserves, the pace of household debt growth slowed to a 6.3% annual rate from 7.4% in the April to June period, while business and federal government debt also rose at a slower pace. State and local government debt contracted in the third quarter.
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