A Cloudy Economic Picture

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Although inflation has been at the forefront of everyone’s mind lately as the price at the pump has blossomed astronomically and everything from chicken legs to lumber has spiked in price, it’s the Stock Market that has created some bad news in the first quarter of 2022. The Stock Market has fallen by $3T, especially hurting those with heavy investments in technology stocks. There is a glimmer of hope, however, in that those who are in the bottom 50% of U.S. income levels are finding themselves in better jobs and more able to save their earnings. But with a laundry list of problems to face, such as inflation, ongoing supply chain issues, and the war in Ukraine, the pendulum still seems to be swinging in the negative direction for U.S. citizens.

Tech Stocks Lead Plunge

The story is dismal. According to a report by the Fed released last week, U.S. household wealth experienced a $400B fall in net worth in the first quarter of 2022, from a record $149.8T to $149.3T. This is the first decline in household wealth since the first quarter of 2020 when COVID-19 stormed through the country.

According to Business Insider, “The Fed said the decline in wealth was driven by a “sizeable” hit to the tune of $3 trillion in the value of stocks on the balance sheets of households.” Technology stocks experienced a profound hit which highlighted the bad news.

Many experts think the trouble will continue for U.S. households. “The S&P 500 fell 5% in the first quarter of the year and is down 16% this year so far. The Nasdaq 100 fell 9% in the first quarter and is down 26% year-to-date.”

With the stock market falling, investors are waiting for capitulation, the moment that everyone has seemingly given up the ship. Once that happens, investors begin to start buying again. Experts think we might be there. “The CNN Business Fear & Greed Index, which measures seven indicators of market sentiment, is now well into Extreme Fear territory. The index goes from 0-100 and lower levels are associated with panic in the market. The index is currently registering a level of 6.”

Bottom Half of U.S. Households Offers Hope

Although the headlines show gloom and doom, all is not lost. The Fed also reported a $1.6T increase in real estate value as well as a high rate of personal savings. Although household wealth fell for the first time since the pandemic began, household balance sheets were still healthy overall, showing an overage of  $32.5T above pre-pandemic levels and still expected to grow.

“Of particular note, bank account balances rose, with checkable deposits and currency rising about $210 billion to $4.47 trillion, and time and savings deposits up about $90 billion to $11.28 trillion.”

As the saying goes, we are all in the same storm, but not all in the same boat. What is interesting about the latest wealth developments is that those in the smaller boats seem to be weathering the storm a bit better at the moment. One important and uplifting fact in this quagmire is that the bottom 50% of U.S. households, those whose net worth is $166K or less pre-pandemic, actually hold a larger share of the nation’s wealth than they have had for 20 years, and their collective net worth has almost doubled in two years. Because of the trillions of dollars pumped into the hands of U.S. citizens for Covid-19 relief, those with lower incomes are finally making some progress.

“For the first time since the late 1990s, low-wage workers are gaining ground compared to other workers,” says Columbia University economics professor Suresh Naidu. “If we’re able to have tight labor markets for another year or so, you can imagine a lot of low-wage workers in previously dead-end jobs are going to be able to break into something new—saving, relocating, going to school, and opening up a path into the middle class.”

Supply chain issues and the invasion of Ukraine have certainly mitigated some of the gains, but for those at the bottom of the wage scale, their pay has still been rising faster than prices. Bloomberg explains, “An inflation-adjusted measure of income by the University of California at Berkeley’s Realtime Inequality site shows the bottom 50%’s pay climbing at an annualized rate of 3.4% in the first quarter of 2022 even as other groups lost ground.

The economic storm continues to swell, as the Stock Market tries to pick up the pieces of its early-2022 debacle. Inflation is causing sticker shock across the country, and it seems as if each citizen has a story to tell. With any luck, the storm will subside sooner rather than later, and the economy can begin its slow climb out of this big hole.

Adnan Zai

Adnan Zai

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