By Jeff MacLellan
Every three years, the Federal Reserve conducts a survey of consumer finances, collecting information about family income, net worth, balance sheet components, credit use and other financial outcomes. The results of this survey were published in late September with some surprising results.
During the three years covered, real gross domestic product grew at an annual rate of 2.5%, the unemployment rate fell from 5.0 to 3.8 percent. These changes in aggregate economic performance were unevenly reflected in the income of families with different characteristics. Following are some results from the survey:
Between 2016 and 2019, median family income grew 5% while the mean (average) declined 3%. The numbers suggest that those in the bottom half of the income scale did far better than those in the upper half, suggesting that income distribution narrowed during the last three years. This pattern stands in contrast to the 2010-2016 timeframe when the opposite occurred when mean income vastly outpaced median income and the income distribution widened considerably.
Between 2016 and 2019, families that were high wealth, had a college education, or identified as white non-Hispanic experienced proportionately smaller income growth than other groups of families but continued to have the highest incomes.
In grouping families by wealth, families at the top of the distribution experienced a sharp decline in average income (following particularly outsized gains over the 2010-2016 period), whereas families in the lower and middle portions of the wealth distribution all showed modest gains.
In grouping families by the reference person’s educational attainment, those with a college degree experienced relatively large declines in both median and mean income, whereas those with a high school diploma and some college experience saw gains. More broadly, the income gaps between those families with a college degree and those without one decreased.
Black non-Hispanic families and white non-Hispanic experienced similar growth in median income but mean income fell for white non-Hispanic families and rose slightly for Black non-Hispanic families.
The report goes on to note that improving economic activity, along with rising home prices and increased equity values supported increases in mean and median net worth. The National Core Logic Home Piece Index increased 5.2% annually during the three-year timeframe. The value of the equity holdings averaged 11.2% increase annually according to a broad stock index, leading to significant inflation adjusted gains in equity holdings. Those changes resulted in the following changes in the distribution of household net worth:
Between 2016 and 2019, median net worth grew 18% and mean net worth rose a modest 2%. In contrast, the 20102016 saw outsized gains in mean net worth relative to median net worth, again meaning the upper half of the populace benefitted far more than the lower half.
Families at the top of the income and wealth distributions experienced very little, if any, growth in median and mean net worth from 2016 to 2019 after experiencing large gains between 2013 and 2016.
Families near the bottom of the income and wealth distribution generally continued to experience substantial gains in the median and mean net worth between 2016 and 2019.
The homeownership rate increased between 2016 and 2019 to 64.9%, a reversal of the declining trend between 2004 and 2016. For families that own a home, the median home housing value increased to about $120,000 from about $106,000 in 2016.
Nearly two thirds of working-class families participated in retirement plans in 2019, down slightly from 2016. Participation continued to be uneven across the income distribution. Less than 40 percent of the families in the bottom half of the income distribution were in a retirement plan, compared with more than 80% of the upper middle-income families and more than 90% in the top decile of income.
Ownership rates of corporate equities increased between 2016 and 2019, driven by families in the lower half of income distribution. Still, less than 1/3 of lower income families in 2019 were participating in the stock market compared with 70% and 90% of families in the upper middle income and the top decile of families respectively.
About 13% of families in the survey owned a privately held business, similar to 2016. Business income increases with income and nearly 40% of families in the top decile of the income distribution owned a business.
There is quite a bit of good news in the foregoing. Incomes on the lower end of the distribution grew faster than the upper income distribution. Minorities generally did better than white non-Hispanic families. Essentially, wealth inequality declined. Net worth for the lower to middle income families increased at a more rapid rate than the upper income earners. Homeownership was up, reversing a declining trend of recent years. Participation in retirement plans and ownership of equities increased particularly for the lower income groups. All of this is good news as the low level of unemployment and tight labor market benefited those at the lower end of the income distribution more than those on the upper end. I wonder why we haven’t heard more about all of this? Lastly, the pandemic will clearly affect this dramatically but it will be another three years before we find out how bad the impact was.
Note: Most of the bullet points were taken directly from the summary report to assure accuracy.
Jeff MacLellan is retired from Landmark Bank. He spent 37 years in banking, and has been tracking local economic indicators since he came to Columbia in 1987.