The Federal Reserve this month released the Flow of Funds (Z.1) data for the third quarter of 2020. Among the many things contained within the report, the Fed revealed that U.S. household (and non-profit group) net worth jumped by $3.82 trillion in Q3 to $123.52 trillion, a new all-time high and an encouraging continuation of strength after Q2’s record $8.29 trillion quarterly gain. In terms of annual growth rates, total net worth rose by 7.64 percent in Q3, back above the average pre-COVID expansionary pace (6.08 percent) and a marked improvement from the decade-low hit in the first quarter (-0.18 percent). Such figures have of course been helped by trillions of dollars in direct transfer payments from the government and a spike in consumers’ savings rates, but the bulk of the heavy lifting has been done by the V-shaped rebounds seen in both the stock market and the real estate market.
Moreover, the swift recovery in net worth that followed the 6.89 percent plunge in Q1 was not surprising (at least to readers of this blog) because home values and stock prices, the largest wealth drivers for most Americans, have surged ever since the lockdowns started to be lifted. Considering that real estate valuations continued to appreciate over the past few months and that even after last week’s uptick in stock market volatility the S&P 500 is still fractionally below its all-time high, another record in household net worth should be expected when the Q4 Z.1 update is released early next year. Some households, though, have not fared so well this crisis, and as usual it is the most financially vulnerable bearing the brunt of the economic downturn. However, it is important to remember that unlike past recessions that typically require some lengthy unwinding of a long-term buildup of supply and demand imbalances, the current downturn is unique in that GDP is being intentionally suppressed by activity restrictions and other efforts to stem the spread of the coronavirus. This is why many of the low-proximity industries less effected by social distancing requirements have already experienced a V-shaped rebound, and in turn why the sooner a widespread vaccine rollout begins the sooner the rest of the economy can join in on the recovery.
Sources: FRBG, FRBSL