Record US household wealth may increase chance of soft landing: McGeever
The opinions expressed here are those of the author, a columnist for Reuters.
By Jamie McGeever
ORLANDO, Florida, Sept 16 (Reuters) -As the Fed prepares to cut interest rates, U.S. households are sitting on their largest accumulation of net wealth in history. By some financial measures, U.S. consumers are better off than they've been in decades.
This financial cushion could increase the likelihood that the economy's descent will be more glide than crash. And it suggests that the take-off in the economy and markets that follows could be quicker and steeper than in previous cycles.
Federal Reserve figures last week showed that increases in home prices and the stock market lifted households' net worth in the second quarter by $2.8 trillion to a record $163.8 trillion. Overall, household net worth soared by nearly $47.0 trillion from the pre-pandemic peak less than five years ago.
A closer analysis of the numbers behind the latest headline figures points to even stronger underlying foundations.
Net wealth as a share of disposable personal income - a broad, relative measure of the household sector's financial wellbeing – has climbed to 785%, the highest point in two years, while household debt as a share of GDP has fallen to 71%, the lowest level in 23 years.
Even though credit card and other forms of delinquencies are on the rise, most households aren't struggling with large debt burdens.
In short, U.S. households as a whole have generally had little trouble withstanding the 525 basis points of Fed rate hikes between March 2022 and July 2023.
"While it is popular to focus on the demise of American society and the U.S. economy, the reality is that American households have never been wealthier, and the level and growth of net worth still far surpasses any other economy globally," Lazard's chief market strategist, Ronald Temple, wrote on Friday.
CONCENTRATED AT THE TOP
But even if this rosy picture holds in the aggregate, not everyone is benefiting equally. In the U.S., 25% of assets are held by 1% of the population and almost 80% is held by 20%, meaning rising house and stock prices have benefited a relatively small cohort of the population.
The lagged impact of multiple years of negative real wage growth and the running down of pandemic-related stimulus is starting to show. The national saving rate fell to 2.9% in July, approaching the historical lows recorded in the 2005-2007 run-up to the Great Financial Crisis.
Many households can no longer rely on excess savings and may be reluctant to borrow to fund future expenditures. Does that mean consumption will soon crater?
Probably not. For better or worse, the consumer spending engine driving the U.S. economy is fueled by the well-off. Economists at BNP Paribas estimate that the top 20% of income earners account for nearly 40% of total spending, and the richest 40% account for more than 60% of all spending.
In fact, rising stock and house prices – which, again, only benefit a sliver of the population – are expected to lift consumer spending this year by $246 billion, according to BNP Paribas economists' estimates earlier this year. That would be the third-largest boost to U.S. consumer demand in 25 years, adding roughly 1 percentage point to 2024 GDP growth.
"Ultimately it is the labor market that will matter much more for a larger slice of households, and in aggregate, there are no significant signs of stress," says BNP Paribas' senior U.S. economist Andrew Husby.
Economists at Goldman Sachs reckon that consumers' disposable personal income is actually being understated by nearly $400 billion. If so, the saving rate isan estimated 5.2%, suggesting downside risks to spending are more limited than perhaps thought.
AS GOOD AS IT GETS?
History shows that, unsurprisingly, Wall Street tends to do well after the Fed starts cutting rates. While the record is slightly mixed, U.S. stocks on average drift higher in the year after the Fed's easing cycle ends and typically rise by as much as 20% if there is no recession, according to analysts at Raymond James.
Spending – and thus corporate earnings – could obviously slow sharply if the labor market were to crater. But that's not most people's base case. Even if that were to occur, the response by the Fed would likely be a reasonably solid shield for financial markets.
Consider that markets are currently pricing in 250 basis points of rate cuts between now and the end of next year – and that's with the expectation that there won't be a severe recession. If there is, markets could get even more help from the Fed.
So even if economic turbulence puts consumers under stress, households appear to be in as strong a position as they could hope, meaning they – and markets – are relatively well positioned to face these potential headwinds.
(The opinions expressed here are those of the author, a columnist for Reuters.)
U.S. household wealth hits new record high https://tmsnrt.rs/4em1YnZ
U.S. consumer disposable personal income could be $400 bln higher - Goldman https://tmsnrt.rs/3TrvYXG
Changes in U.S. household net worth https://tmsnrt.rs/47u6m20
U.S. household debt as share of GDP lowest in 23 years https://tmsnrt.rs/4etglHf
By Jamie McGeever; Editing by Leslie Adler
Τελευταία νέα
Δήλωση αποποίησης ευθύνης: Οι οντότητες του ομίλου XM Group παρέχουν υπηρεσίες σε βάση εκτέλεσης μόνο και η πρόσβαση στην ηλεκτρονική πλατφόρμα συναλλαγών μας που επιτρέπει στον ενδιαφερόμενο να δει ή/και να χρησιμοποιήσει το περιεχόμενο που είναι διαθέσιμο στην ιστοσελίδα μας ή μέσω αυτής, δε διαφοροποιεί ούτε επεκτείνει αυτές τις υπηρεσίες πέραν αυτού ούτε προορίζεται για κάτι τέτοιο. Η εν λόγω πρόσβαση και χρήση υπόκεινται σε: (i) Όρους και προϋποθέσεις, (ii) Προειδοποιήσεις κινδύνου και (iii) Πλήρη δήλωση αποποίησης ευθύνης. Ως εκ τούτου, το περιεχόμενο αυτό παρέχεται μόνο ως γενική πληροφόρηση. Λάβετε ιδιαιτέρως υπόψη σας ότι τα περιεχόμενα της ηλεκτρονικής πλατφόρμας συναλλαγών μας δεν αποτελούν παρότρυνση, ούτε προσφορά για να προβείτε σε οποιεσδήποτε συναλλαγές στις χρηματοπιστωτικές αγορές. Η πραγματοποίηση συναλλαγών στις χρηματοπιστωτικές αγορές ενέχει σημαντικό κίνδυνο για το κεφάλαιό σας.
Όλο το υλικό που δημοσιεύεται στην ηλεκτρονική πλατφόρμα συναλλαγών μας προορίζεται για εκπαιδευτικούς/ενημερωτικούς σκοπούς μόνο και δεν περιέχει, ούτε θα πρέπει να θεωρηθεί ότι περιέχει συμβουλές και συστάσεις χρηματοοικονομικές ή σε σχέση με φόρο επενδύσεων και την πραγματοποίηση συναλλαγών, ούτε αρχείο των τιμών διαπραγμάτευσής μας ούτε και προσφορά ή παρότρυνση για συναλλαγή οποιωνδήποτε χρηματοπιστωτικών μέσων ή ανεπιθύμητες προς εσάς προωθητικές ενέργειες.
Οποιοδήποτε περιεχόμενο τρίτων, καθώς και περιεχόμενο που εκπονείται από την ΧΜ, όπως απόψεις, ειδήσεις, έρευνα, αναλύσεις, τιμές, άλλες πληροφορίες ή σύνδεσμοι προς ιστότοπους τρίτων το οποίο περιέχεται σε αυτήν την ιστοσελίδα παρέχεται «ως έχει», ως γενικός σχολιασμός της αγοράς και δεν αποτελεί επενδυτική συμβουλή. Στον βαθμό που οποιοδήποτε περιεχόμενο ερμηνεύεται ως επενδυτική έρευνα, πρέπει να λάβετε υπόψη και να αποδεχτείτε ότι το περιεχόμενο δεν προοριζόταν και δεν έχει προετοιμαστεί σύμφωνα με τις νομικές απαιτήσεις που αποσκοπούν στην προώθηση της ανεξαρτησίας της επενδυτικής έρευνας και ως εκ τούτου, θα πρέπει να θεωρηθεί ως επικοινωνία μάρκετινγκ σύμφωνα με τους σχετικούς νόμους και κανονισμούς. Παρακαλούμε εξασφαλίστε ότι έχετε διαβάσει και κατανοήσει τη Γνωστοποίησή μας περί Μη ανεξάρτητης επενδυτικής έρευνας και την Προειδοποίηση ρίσκου όσον αφορά τις παραπάνω πληροφορίες, τις οποίες μπορείτε να βρείτε εδώ.
