Rising stock market prices pumped wealth back into
Americans' pockets at the end of last year, but declining
property values, slowed credit growth, and a drop in corporate
profits may show the influence of Federal Reserve rate hikes
beginning to take hold.
Household net worth rose 2% to $147.71 trillion in the fourth quarter of 2022 from $144.78 trillion at the end of the third quarter, the Federal Reserve reported on Thursday. The value of holdings of equities increased $2.7 trillion, while real estate values dropped by about $100 billion. The quarterly snapshot of U.S. financial accounts also showed credit growth was slowing among households and businesses as the year ended in the face of a sharp increase in interest rates engineered by the Fed over the course of 2022.
Total domestic nonfinancial debt grew at a 3% annual rate in the fourth quarter, down from 4.5% the quarter before and from 8.8% a year earlier. Household debt growth slowed to a 2.3% annual rate from 6.2% in the third quarter, while business debt growth eased to 3.6% from 4.3%. After hitting a record $151.9 trillion in the first quarter of last year, household wealth plummeted by more than $7 trillion over the second and third quarters as the Fed's aggressive rate-hike campaign sent stocks into a bear market. The Fed has delivered 4.5 percentage points of rate increases since last March as the highest inflation in four decades brought an abrupt end to a period of near-zero percent borrowing costs that had prevailed during the coronavirus pandemic.
The benchmark S&P 500 Index fell by roughly 25%
through the first nine months of 2022 before posting a 7%
recovery in the fourth quarter to staunch the overall decline in
net worth. On the year, though, wealth declined by about $4
trillion from 2021.
The decline in property values at the end of last year was
the first since 2012 and coincided with a year-long slump in the
housing market, which has stood out as the sector most affected
by the Fed's rate hikes.
Household cash reserves, which had swelled during the
pandemic from trillions of dollars in government assistance
payments, declined modestly for a third straight quarter.
The combined value of checking and savings deposits, certificates of deposit and money market mutual funds dropped to about $18.1 trillion from $18.3 trillion at the end of the third quarter and from a record high of nearly $18.5 trillion in the first quarter. Savings and time deposits declined to the lowest since the first quarter of 2020 at $10.4 trillion, while checking account balances, which have also been buoyed by a strong job market, slipped for the first time in three years to just below $5 trillion.
The Fed data also suggested that some of the dynamics
policymakers have been looking for in the fight against
inflation, such as a moderation in corporate profits, may be
under way.
The corporate profit share of national income jumped during the pandemic to a high of 14.5% in the second quarter of 2021, and remained above 14% early this year. By the end of the year it had fallen to 12.8%, comparable to pre-pandemic levels. The share of national income going to employee wages and benefits rose at year's end to 63.3%.
(Reporting By Dan Burns and Howard Schneider; Editing by Deepa
Babington and Andrea Ricci)
