Home / News / World /  Surge in wealth may lead to complacency on economy

A record level of wealth and America’s biggest economic downturn on record make strange bedfellows. But that’s just what we saw last quarter.

The Federal Reserve on Monday reported that the net worth of U.S. households increased by $7.6 trillion, or 6.8%, in the second quarter from the first quarter, to $119 trillion. That pushed it above the previous record, set in the fourth quarter. And now, with stocks at higher levels than they were at the end of the second quarter—and the value of real estate continuing to rise—household net worth is surely even higher.

The rebound in wealth stands in contrast with what happened to the economy in the second quarter, when gross domestic product registered its largest decline in more than 70 years of record-keeping. GDP will likely see a substantial rebound in the third quarter, but it still looks likely to remain below pre-Covid levels. Federal Reserve projections suggest it won’t fully recover until the latter half of next year.

The differing paths of wealth and economic output underscore how the downturn has hurt poorer Americans while leaving many of their richer counterparts relatively unscathed. Only a bit more than half of U.S. families have stock market holdings of any kind, according to the Pew Research Center, including through pension plans and 401(k) accounts. Fewer than 1 in 5 families making less than $35,000 a year hold any stocks, while nearly 9 in 10 families making $100,000 do. For poorer and middle-class households that do own stocks, the amounts tend to be small.

Those poorer Americans also have more often tended to be the ones who lost jobs during the downturn, which has had an outsize effect on work in low-paying service-sector industries, such as restaurants. Job losses among the better off have been much less severe. As a result, the gaps between rich and poor have only widened. With another round of government support looking increasingly unlikely before the election, those differences may only become more apparent in the months ahead, with financial distress among the poor becoming more acute.

The growing divisions could have business repercussions, with companies that sell to less-affluent Americans likely to see sales continue to slump. The more important issue, however, may be that because their own wealth and income have at this point been only lightly touched by the Covid crisis, better-off Americans—a group that includes most investors—could be underestimating the extent of the economic damage. They may find their assets are priced on unfounded optimism.

Write to Justin Lahart at justin.lahart@wsj.com

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