In a remarkable surge driven by a roaring stock market and a rebound in property values, U.S. household wealth has soared to an all-time high, surpassing $154 trillion in the second quarter, according to data released by the Federal Reserve on Friday.

The Federal Reserve’s quarterly snapshot of the financial health of households, businesses, and government entities revealed that household net worth experienced a robust 3.7% increase, climbing from $148.79 trillion at the close of the first quarter to a staggering $154.28 trillion by the end of June.

This data underscores how households have managed to fully recover from the wealth losses incurred during a turbulent bear market for stocks and a dip in real estate values throughout much of the previous year. This resurgence coincided with the Federal Reserve’s vigorous efforts to combat inflation through a series of rapid interest rate hikes.

A key driver of this wealth boom was the Standard & Poor’s 500 total return index (.SPXTR), which, including reinvested dividends, posted an impressive 8.7% gain in the second quarter, marking its most substantial increase since the last quarter of 2021. The stock market rally contributed a staggering $2.6 trillion to the overall growth in household net worth, constituting nearly half of the total wealth accumulation for the period.

Real estate also played a pivotal role, with property values surging for the first time since the second quarter of 2022, contributing a substantial $2.5 trillion to the overall net worth increase.

By the end of June, household wealth surpassed the previous record high of $152.49 trillion established in the first quarter of 2022 by approximately $1.8 trillion, reflecting a 1.2% increase.

However, the data also revealed a concerning trend in the decline of households’ cash reserves, which encompass various bank deposits and money market mutual fund holdings. For a record fifth consecutive quarter, these cash reserves shrank, dwindling to $17.7 trillion by the end of June.

This decline, down by $66 billion from the end of March, represents a substantial reduction from its peak of nearly $18.3 trillion at the close of the first quarter in 2022. The shift away from banks has been driven by their slow response to the Federal Reserve’s interest rate hikes, particularly in offering higher rates on checking and savings accounts, as well as certificates of deposit. Bank deposits saw a decrease of more than $200 billion, falling below $14.2 trillion, while money market fund balances surged by $137 billion to reach a record high of more than $3.5 trillion.

The report also highlighted the ongoing increase in debt levels across households, businesses, and government sectors during the second quarter, albeit at varying rates.

Total nonfinancial debt surged at an annualized rate of 6.3%, marking the fastest increase since the first quarter of 2021, and reached $71.2 trillion. Households and businesses each contributed approximately $20 trillion to this total, while government debt stood at $31.3 trillion.

The primary driver of this surge was the federal government’s 12.7% annualized increase in debt, the most significant since the record spike in the second quarter of 2020, which had fueled the initial round of pandemic relief spending. The U.S. Treasury escalated bond issuance late in the second quarter following an agreement between the Biden administration and Congress to suspend the federal debt ceiling, averting a government default.

On the other hand, business debt growth moderated substantially, increasing at a meager 1.9% annualized rate during the second quarter, marking its slowest growth since the final quarter of 2020.

Photo Source: Google

10th September, 2023
By: Delino Gayweh
Serrari Financial Analyst