U.S. growth starts to help more people, but wealthiest win most

THE FEDERAL RESERVE released its Survey of Consumer Finances Wednesday / BLOOMBERG FILE PHOTO/BRENDAN SMIALOWSKI
THE FEDERAL RESERVE released its Survey of Consumer Finances Wednesday / BLOOMBERG FILE PHOTO/BRENDAN SMIALOWSKI

NEW YORK – The long-running United States economic expansion is starting to reach down and deliver gains to lower-income Americans, while causing already-wide disparities in earning power and wealth to get even bigger, according to a triennial Federal Reserve survey.

“Families throughout the income distribution experienced gains in average real incomes between 2013 and 2016, reversing the trend from 2010 to 2013, when real incomes fell or remained stagnant for all but the top of the income distribution,” the Fed said in its Survey of Consumer Finances released Wednesday in Washington.

The survey also found that the shares of income and wealth held by the most affluent families reached the highest levels in records back to 1989. The share of income received by the top 1 percent of families rose to 23.8 percent in 2016, up from 20.3 percent in 2013. The share of the bottom 90 percent of the distribution fell to 49.7 percent, the lowest on record in the survey’s history.

While the jobless rate is near a 16-year low and the economy is growing for a ninth year, rising inequality is a risk to capitalist institutions and social cohesion as market-based systems distribute more gains to those at the top. President Donald Trump rode a wave of anti-establishment anger to the presidency, and trust in the Fed waned after it bailed out failing financial institutions such as Bear Stearns Cos. in 2008. Economists now warn that rising disparities in wealth and incomes could also affect patterns of consumption and the labor market.

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“Persistently high levels of income and wealth inequality may also have implications for the robustness of consumer spending” because the wealthy have a higher propensity to save, Fed Governor Lael Brainard said in a speech Tuesday, where she previewed the survey’s results.

The findings dovetail with other recent reports showing similar trend. An annual Census Bureau report released earlier this month said the median inflation-adjusted household income climbed to a record last year. At the same time, the gap between the top and bottom earners has widened since the last recession ended in 2009. A separate Fed report last week showed U.S. household wealth increased $1.7 trillion in the second quarter to an all-time high.

Top 1%

The Fed survey out Wednesday said the wealth share of the top 1 percent climbed to 38.6 percent in 2016 from 36.3 percent three years earlier. The wealth share of the bottom 90 percent of families has been falling over most of the past 25 years, dropping to 22.8 percent in 2016, down from 33.2 percent in 1989.

Brainard, in her speech, also highlighted racial and geographical disparities in income and wealth.

For example, she noted the average annual income for families in metropolitan areas was about $25,000 higher than for families in non-metro areas, and the average wealth holdings for families in metro areas exceeded average wealth for families in non-metro areas by nearly $500,000.

“These gaps have more than doubled over the past three decades,” she said.

While the data showed that black and Hispanic families had faster gains in incomes and net worth over the three-year period, whites remained far ahead overall.

The average income for white families in the 2016 survey was about $123,400 per year, compared with $54,000 for black families and $57,300 for Hispanic families, according to the latest Fed survey data.

Wealth Gaps

Disparities in wealth are even larger: Average wealth holdings for white families in 2016 were about $933,700, compared with $191,200 for Hispanic families and $138,200 for black families.

While the percentage of families who owned stocks, either directly or via funds, rose to 51.9 percent from 48.8 percent over the three-year period, the report highlighted the wide variation in the value of investments across income groups, with average holdings for the top tier about nine times that of the upper-middle income bracket.

After a period of decline between 2007 and 2013, retirement account ownership rose to 52 percent in 2016, though the median values of retirement accounts were little changed, at around $60,000 in 2016.

Inequality also extends to homeownership. While the median and average values of primary residences rose by 6 percent and 11 percent, respectively, a decline in the homeownership rate from 65.2 percent of families to 63.7 percent over the period suggests that fewer are benefiting from those gains.

Meanwhile, while families are holding less debt overall, more are taking on loans for education and vehicles. The share of families holding educational loans rose to 22.4 percent in 2016, the report said, up from 20 percent in 2013. The average value of those loans rose to $34,200, a 15 percent gain from 2013, while the average value of vehicle loans advanced 14 percent to $17,200,

The latest survey saw a big jump in incomes for heads of households with no high school diploma. Mean income rose 25 percent between 2013 and 2016 for that group compared with 15 percent for those with a college degree.

At the same time, a college degree still translates to a median income of $92,100, about $66,000 more than the median for families where the head of household has no high school diploma.

Craig Torres and Jordan Yadoo are reporters for Bloomberg News.