Government aid, stock market pushed Q2 household net worth to pre-pandemic levels, Fed says

REUTERS/Kevin Lamarque

By Howard Schneider

WASHINGTON, Sept 21 (Reuters) - A rebounding stock market and massive federal aid payments pushed the net worth of U.S. households back to pre-coronavirus levels in the second quarter, the Federal Reserve reported on Monday, with savings accounts and equity portfolios both rising sharply despite the pandemic.

The U.S. central bank's latest quarterly look at wealth and income offered further evidence of how the quick mobilization by U.S. lawmakers and the Fed in March and April, including approval of small business loans and $600 per week in extra unemployment insurance, threw a temporary safety net under much of the economy.

The Fed reported that when the second quarter ended in June, household net worth - the value of homes, stock investments and other assets less what is owed on mortgages and other loans - had hit $118.9 trillion, a $7.6 trillion jump from the prior quarter and above the $118.5 trillion from the last quarter of 2019.

That included a $5.7 trillion jump in the value of stocks and mutual funds that had cratered at the start of the pandemic but began to surge higher as the central bank and Congress approved an extensive array of programs to stave off an economic collapse.

But it also included a $700 billion increase in savings among households and non-financial businesses, many of which benefited from enhanced unemployment benefits.

That money, tucked away as of the end of June, likely helped support ongoing retail sales, and helped avert a run of bankruptcies and apartment evictions many had expected when the spread of the coronavirus forced much of the U.S. economy to shut down through March and April.

The flow of assistance also helped control household debt levels, which grew at just a 0.5% annualized rate over the quarter, the smallest increase since 2012.

But the extra spending to battle the pandemic helped drive the growth in federal borrowing to historic levels, increasing at a 58.9% annualized rate.

The data do not speak to what's happening now. Many economists are concerned the expiry of the small business lending and additional unemployment insurance payments authorized as part of the coronavirus-related aid will force people to burn through those extra savings, crimping the economy moving forward.

The COVID-19 bear market and rebound

(Reporting by Howard Schneider Editing by Paul Simao)

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