One thing that has made the Covid-19 crisis a lot different from past recessions: At least in aggregate, the balance sheets of both households and businesses have weathered it well.
In its quarterly release on U.S. financial accounts, the Federal Reserve on Thursday reported that household net worth—the value of Americans’ total assets minus their liabilities—swelled to $122.9 trillion in the fourth quarter from $116.2 trillion in the third quarter and $111.4 trillion at the end of 2019. That contrasts with the last recession, when household net worth fell sharply and then took years to recover.
The difference was driven by what happened with asset values. Stocks have done unusually well, and home values, spurred by historically low mortgage rates and urbanites flocking to the suburbs, have risen. That isn’t all, though. Money held in savings, checking accounts and other cash equivalents rose by $2.8 trillion, or 21%, in the fourth quarter from a year earlier. That is a reflection of how incomes, supplemented by the fiscal support the government poured into the economy, climbed even as people spent less.
Meanwhile, companies borrowed more. Loans and debt securities outstanding by nonfinancial, noncorporate businesses increased by $1 trillion to $11.1 trillion at the end of last year from a year earlier. But they also shifted borrowing toward more long-term debt, taking advantage of low interest rates. And much of what they borrowed effectively went into the bank—their money held in currency, domestic savings and checking accounts and money-market funds rose by $849 billion.
On the whole, companies were able to use last year’s easy financing environment to their advantage. That wasn’t something they were able to do when the financial crisis struck, or following the dot-com bust, which really battered corporate finances.
While these numbers reveal something of how households and companies as a whole fared over the past year, they obscure some important problems. We know, for example, that the finances of many rich people got even stronger over the past year and that those gains in prosperity mask the distress some poorer Americans experienced. Similarly, large companies have been able to weather the crisis in ways many smaller businesses couldn’t.
Still, the balance sheets of both households and businesses are in far better shape than one might have expected when the Covid-19 crisis began. That could make the recovery that comes as the pandemic eases more robust.
Write to Justin Lahart at [email protected]
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