The Federal Reserve this month released the Flow of Funds (Z.1) data for the first quarter of 2020. Among the many things contained within the report, the Fed revealed that U.S. household (and non-profit group) net worth fell by $6.55 trillion in Q1 to a total of $110.79 trillion, a 5.58 percent quarter-over-quarter decrease and therefore the largest decline in over half a century. Compared to this same period last year, though, total net worth was down just 0.35 percent in Q1, a reflection of how strong growth was ahead of the pandemic.
It is natural to expect to see an even sharper drop in net worth when the Q2 data is released in a few months considering that the worst parts of the lockdown-related economic disruptions occurred in April, and millions of Americans as of this writing are still unemployed. However, the Q2 drop could be a lot less severe than some anticipate because during these last three months stock prices have rebounded sharply (even after accounting for the volatility of the past few weeks), and home values in many regions are actually up compared to pre-COVID levels. Trillions of dollars in direct transfer payments from the government and a spike in consumers’ savings rates also mean that many American households are flush with cash for the first time in years. Such conditions should both limit the dent in total net worth and help drive the rebound in consumption once confidence in the reopening gains more momentum.
Sources: FRBG, FRBSL