Inflation Erases US Household Wealth Gains Under Biden, Research Indicates

The cost of living continues to eat into America’s lunch.
Inflation Erases US Household Wealth Gains Under Biden, Research Indicates
President Joe Biden speaks about "Bidenomics" at CS Wind in Pueblo, Colo., on Nov. 29, 2023. (Michael Ciaglo/Getty Images)
Andrew Moran
5/21/2024
Updated:
5/22/2024
0:00

Over the past three years, household wealth has surged because of a combination of higher stock market returns, rising property values, and pandemic-era fiscal stimulus. However, new research indicates that rampant price inflation has nearly erased all of these gains.

The Wall Street Journal recently published an analysis, shared by George Mason University professor Todd Zywicki on social media platform X, that assessed changes in U.S. household net worth, from cash and stocks to bonds and property, under Presidents Joe Biden and Donald Trump.
Using data from the Federal Reserve Bank of St. Louis, the publication found that nominal household net worth climbed by 19 percent in President Biden’s first three years in office. However, real (inflation-adjusted) net worth rose by 0.7 percent in this span.

By comparison, total nominal household net worth surged by 23 percent in President Trump’s first 36 months in the White House. After factoring in inflation, it surged by 16 percent.

Despite the sizable increase in household net worth, the current administration’s “policies have largely undermined what’s known in economics as the wealth effect,” according to Merrill Matthews, resident scholar at the Institute for Policy Innovation, a public policy think tank.

The wealth effect refers to the principle that consumers spend more when their wealth grows, creating more of a positive attitude toward the economy.

“Biden’s problem is that even with the stock market rising and home prices up, there are several negative factors, largely of his own making, that are muting the wealth effect,” Mr. Matthews told The Epoch Times.

While home prices have substantially risen, interest rates have climbed simultaneously, discouraging households from upgrading to larger properties.

“And then there’s inflation, due in part to Biden’s pumping so much money into the economy with his unabated spending spree,” he added. “Lingering inflation and high interest rates have put a damper on many consumers, making them unsure about the future, which makes them open to a political change at the top.”

Inflation: A Tale of Two Cities

The data illustrate that, on the inflation front, there has been a divergence between the two presidents.

In January 2021, the annual inflation rate was 1.4 percent, accelerating to 9.1 percent in June 2022, the highest in 40 years. Cumulatively, the consumer price index (CPI) has rocketed by 19.5 percent.

Inflation was a lot lower under President Biden’s predecessor, with the annual rate never topping 2.4 percent.

Heading into the November election, President Biden has defended his economic record and tried to contrast it with that of the presumptive Republican presidential nominee.

At the same time, President Biden has come under fire for claiming in media interviews that inflation was 9 percent when he entered office.

White House officials have defended the president, arguing that he was discussing the factors leading to rampant price inflation.

White House press secretary Karine Jean-Pierre told reporters that President Biden was talking about the COVID-19 pandemic’s disruption of global supply chains that led to the inflation spike.

“The point that he was making is that the factors that caused inflation were in place when he walked into the administration,” Ms. Jean-Pierre said at a May 15 news briefing.

In a recent interview with Fox News host Neil Cavuto, Jared Bernstein, chair of the Council of Economic Advisers, presented the same argument.
Council of Economic Advisers member Jared Bernstein speaks at a news briefing at the White House on July 18, 2022. (Andrew Harnik/AP Photo)
Council of Economic Advisers member Jared Bernstein speaks at a news briefing at the White House on July 18, 2022. (Andrew Harnik/AP Photo)

“The president talked about how concerned he was for households struggling with prices,” Mr. Bernstein stated. “He’s making the point that the factors that caused inflation to climb to 9 percent were in place when he took office.”

Mr. Bernstein then asserted that the annual growth in core inflation, which omits the volatile food and energy sectors, was 9 percent in the second quarter.

According to the Bureau of Labor Statistics, the core CPI was between 3 percent and 4.5 percent in the April to June period in 2021.

Digging Into Household Wealth

In March, the Federal Reserve reported that household wealth climbed to an all-time high of $156.2 trillion at the end of 2023, supported by surging equities and growing property market values.
Last year, the U.S. central bank released the results of its triennial Survey of Consumer Finances. The report discovered that median net worth jumped by 37 percent to $192,900 from 2019 to 2022, and the gains were “near universal across different types of families.”

This was primarily a byproduct of the Fed’s slashing interest rates in response to the coronavirus pandemic, allowing consumers to lower their borrowing costs.

For example, households could obtain a 30-year mortgage or refinance their mortgages at extremely low rates. This then contributed to the spike in home prices.

“Americans aren’t as wealthy as they were before the Fed started jacking up interest rates, but they are still lots wealthier than they were before the pandemic,” Mark Zandi, chief economist at Moody’s Analytics, said on X.

However, according to Fed economists, the net worth gains have not been equal. The top 10 percent possess a median net worth of close to $3 million, while the bottom 25 percent maintain a net worth of nearly $4,000.

Meanwhile, bank economists contend that the increase in net worth has propped up consumer spending, which has supported the broader economy.

“Consumers have been stalwart in their spending through the highs and lows of the post-pandemic inflationary period, undeterred by the 525 basis point rise in the federal funds rate,” TD economists said in a May 8 research note. “Even as the buildup of pandemic-era excess savings has been exhausted for most households ... broader wealth gains have propped up spending.”

Market watchers are debating whether this trend of consumer spending boosting the gross domestic product growth rate will persist.

A Brookings Institution report argued that accumulated household wealth has dissipated, forcing households to make a choice: slow down their spending or increase their debt burdens.

“The current state of household finances does not support continued strong consumer spending and leaves households at a crossroads if recent trends in finances continue: they can either moderate their spending or become more indebted,” the think tank noted.

Consumer stress is beginning to show up in the data as household debt continues to climb, delinquency rates are inching higher, and the personal savings rate is plummeting.

To kick off 2024, household debt increased by $184 billion to $17.7 trillion. With interest rates remaining elevated, indebted consumers are beginning to face challenges, according to Joelle Scally, regional economic principal within the household and public policy research division at the New York Fed.

“In the first quarter of 2024, credit card and auto loan transition rates into serious delinquency continued to rise across all age groups,” the staff economist noted in the report. “An increasing number of borrowers missed credit card payments, revealing worsening financial distress among some households.”
The personal savings rate plummeted to 3.2 percent, the lowest since August 2022.

A series of corporate earnings reports also suggest that consumers, particularly the low-income demographic, are pulling back in their spending.

In April, retail sales were unchanged, falling short of the consensus estimate of 0.4 percent. This also followed a downwardly adjusted 0.6 percent increase in March. Real retail sales were down 0.3 percent monthly and down 0.3 percent year-over-year.

Current economic conditions, whether high inflation or mounting debt, have affected the public’s mood for both themselves and the broader economy.

According to a new Bankrate survey, 89 percent of Americans do not consider themselves financially successful, and more than one-quarter (27 percent) think they never will be.
The University of Michigan’s widely watched Consumer Sentiment Index shows recently touched a six-month low as consumers “expressed worries that inflation, unemployment and interest rates may all be moving in an unfavorable direction in the year ahead.”