U.S. households started year flush ahead of oil shock

U.S. currency is seen in this picture illustration taken March 6, 2020. REUTERS/Mike Segar/Illustration

March 10 (Reuters) - U.S. household wealth rose to a record $150.3 trillion in the final quarter of last year, a Federal Reserve report on Thursday showed, a financial cushion that may keep consumers spending and limit the economic damage from Russia's invasion of Ukraine.

The figures, coupled with a hot labor market, indicated Americans were in relatively healthy shape ahead of the war, which has caused the cost of commodities to surge at a time when U.S. inflation is already at a 40-year high. read more

Still, with real earnings lagging inflation and uncertainty on how long the jump in energy and other costs will last, it remains to be seen how much spending will be impacted. The report does not reflect the breakdown of gains by income, with lower-income households typically spending more of their income on gasoline and food.

Gasoline prices in the last week surged by the most in nearly 17 years, with consumers paying on average more than $4 for a gallon of unleaded gasoline. The costs of other goods like food are set to move higher as well given that Russia and Ukraine export more than a quarter of the world's wheat and Ukraine is a major corn exporter.

The household financial data, which covers the period from last October through December, showed that the majority of the increase in wealth came from a rise in the value of equities, which grew $2.5 trillion during a period when the S&P 500 (.SPX) index increased about 11%.

The still-booming housing market, which has been soaring since the start of the COVID-19 pandemic, also contributed heavily. Real estate values added around $1.5 trillion to overall wealth.

Household net worth was also upwardly revised to $145.0 trillion for the third quarter of 2021.

U.S. consumers overall have accumulated around $2.6 trillion in so-called excess savings in recent years compared to the pre-pandemic trend, JPMorgan economist Daniel Silver noted earlier this week, in large part helped by $5 trillion in government aid packages over the past two years.

That aid was designed to blunt the impact of the pandemic on businesses and consumers and included more generous unemployment benefits and stimulus checks paid directly to people's bank accounts. Both programs ended last year.

The amount held in household savings deposits rose to $11.1 trillion in the fourth quarter from $10.7 trillion at the end of the third quarter. Balances in checking accounts increased to $4.1 trillion from $3.7 trillion in the third quarter, the report showed.

Elsewhere in the report, household debt rose at an 8.0% annual rate in the fourth quarter, from an unrevised 6.2% growth rate in the third quarter of the year.

Liquid assets held by non-financial firms were $7.1 trillion versus $6.9 trillion in the July-September period.

Reporting by Lindsay Dunsmuir; Editing by Andrea Ricci

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