US household wealth fell by a record $6.1 trillion in the second quarter to its lowest in a year as a bear market in stocks far outweighed further gains in real estate values, a Federal Reserve report showed.
Household net worth tumbled to $143.8 trillion at the end of June from $149.9 trillion at the end of March, its second consecutive quarterly decline, the Fed’s quarterly snapshot of the national balance sheet showed. Through June, Americans’ collective wealth had fallen by more than $6.2 trillion from a record $150 trillion at the end of 2021.
The net drop in wealth in the second quarter was about $30 billion larger than the previous record decline notched two years earlier, as the onset of the COVID-19 pandemic upended financial markets. That decline – in the second quarter of 2020 – still stands as the largest on a percentage basis at 5.2 percent versus 4.1 percent in the most recent report.
The latest fall was led by a $7.7 trillion decline in stock market values as equities slid into a bear market in the first half of the year on worries about surging inflation and the Fed’s aggressive response with interest rate increases. The equity market drop outstripped a $1.4 trillion gain in real estate values.
Total nonfinancial debt rose at a 6.5 percent annualized rate after rising at an 8.3 percent rate in the first quarter, the Fed data showed. Household debt growth also slowed to a 7.4 percent annual rate from 8.3 percent in the first three months of the year, while business, federal, state and local government debt levels all rose.
The US economy contracted at a more moderate pace than initially thought in the second quarter as consumer spending blunted some of the drag from a sharp slowdown in inventory accumulation, dispelling fears that a recession was underway.
That was underscored by details of the report from the Commerce Department on Thursday, showing the economy growing steadily last quarter when measured from the income side. The underlying economic strength fits in with recent upbeat readings on the labor market, retail sales and industrial production.
Gross domestic product shrank at a 0.6 percent annualized rate last quarter, the government said in its second estimate of GDP. That was an upward revision from the previously estimated 0.9 percent pace of decline. The economy contracted at a 1.6 percent rate in the first quarter. Economists polled by Reuters had expected GDP would be revised slightly up to show output falling at a 0.8 percent rate.
The two straight quarterly decreases in GDP meet the standard definition of a technical recession. But in the case of the U.S. economy, the contraction in GDP is misleading, given the large role played by inventories.
Supply chain disruptions have left unfinished products on factory floors or at shipping docks. These products cannot be included in GDP until they go into inventories.
Inventories rose at a $83.9 billion rate last quarter after increasing at a $188.5 billion pace in the first quarter. They subtracted 1.83 percentage points from GDP. Consumer spending grew at a 1.5 percent pace, revised up from the previously reported 1.0 percent rate. Shortages and the resulting higher prices have crimped spending.
An alternative measure of growth, gross domestic income, or GDI, increased at a 1.4 percent rate in the second quarter. GDI, which measures the economy’s performance from the income side, grew at a 1.8 percent pace in the first quarter. It is calculated using corporate profits, compensation and proprietors income data.
