Americans Are Richer Than Ever, But They Don’t Feel That Way

U.S. household net worth is expected to hit another record, but that won’t mean much to most people

By Steven Russolillo

Pedestrians in San Francisco. The Federal Reserve is set Thursday to release its update on net worth of U.S. households and nonprofits for the fourth quarter and full year of 2016. Photo: David Paul Morris/Bloomberg News


The wealth of the nation is poised to hit another record. Unfortunately, that is small solace to a majority of Americans.

The Federal Reserve is set Thursday to release its update on net worth of U.S. households and nonprofits for the fourth quarter and full year of 2016. This is a sum of all assets, such as homes, stocks, bonds, vehicles and cash, minus all debts, including mortgages, credit cards and student and auto loans.

As of the third quarter, American households had roughly $105 trillion in assets and $15 trillion of debt. This $90.2 trillion in net worth has risen by about two-thirds since the depths of the financial crisis in 2009. And as home values kept rising and stock prices surged following the election, it likely only increased. Jim O’Sullivan of High Frequency Economics estimates total net worth to have risen by $2 trillion in the fourth quarter, which would be the biggest jump in a year.

But this only tells part of the story: A rising market benefits a small percentage of U.S. households because stock ownership is concentrated among the wealthy. Many individuals who might have been invested have also missed the eight-year bull market. Cash flowed out of U.S. equity mutual funds and exchange traded funds in six of the past eight years through 2016, according to data provider Morningstar Inc.

Rising home values are more important because the value of houses far exceeds the value of stocks held by individuals. Even so, the homeownership rate hovers near a five-decade low and well below its precrisis peak. Those who do own homes aren’t as able or willing to borrow against them to fuel spending binges like they did during the housing bubble.

This explains why the so-called wealth effect isn’t having as much of an impact on overall consumer spending and economic growth as it used to. “Wealth effects may have been smaller than usual due to lingering caution after the financial crisis,” suggests Mr. O’Sullivan.

Whatever the explanation, rising asset values aren’t producing the same boost in spending that they once did. The personal saving rate at 5.5% as of January is twice as high as a decade ago.

It is also higher than the average rate during the technology bubble, measured from December 1996 through March 2000. Rising incomes matter much more to economic activity and, in that regard, wages have grown surprisingly slowly for much of the economic recovery.

Bulging portfolios are nice, but fatter paychecks will be needed to kick the U.S. economy into the next gear.

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