Ever wonder who owns all the stocks? Well, if you believe Fed data, it’s the well-to-do. In its Distributional Financial Accounts, the Fed provides quarterly estimates for the distribution of wealth among US households. Users can access the interactive charts on the Fed’s web site, and the Fed makes it easy to see the various asset and liability categories that go into the net worth calculations. I was most interested in looking at the growth in stock wealth, and who owns it. The first chart below shows the huge growth in the total value of equities owned by US households since 1998. Aggregate stock wealth grew from $7.7 trillion in 1998 to $33.5 trillion at the end of 2020 – a compounded annual growth rate of about 6.7%. That rate is comfortably ahead of inflation over that time period (~2%) and reflects the growth and success of the US business sector.
The Fed also breaks down its wealth data by household net worth using four categories: top 1%, next 9%, next 40%, and bottom 50%. Using that data, we constructed the chart below to show who owns the lion’s share of the stock market wealth. It’s easy to see that the overwhelming majority of stocks, represented by the blue and orange colored areas, are owned by the wealthiest 10% of households. In fact, the share of total stock wealth owned by the top 10% has grown to 89% from 82% in 1998, with the top 1% owning over half of the total. The yellow line on the top on the chart, which is barely visible, is the share of stock wealth owned by the bottom 50% of households. It has decreased from 1.4% of the total in 1998 to 0.6% in 2020.
I also wanted to see if the distribution of stock wealth was similar to the distribution of overall wealth. The chart below shows total household net worth by net worth percentile. Once again we see that the top 10% of households claim the majority of wealth. However, the data is not quite so lopsided. The top 10% currently claim about 70% of the total net worth compared to about 63% in 1998. But the bottom 50% are at just 2% compared to about 3.6% in 1998.
We’ve all witnessed how the pandemic has impacted people differently from a financial standpoint. The rapidly rising equity and housing markets have further increased the wealth gap to the point where the top 10% of households control 70% of the country’s total wealth. This figure was closer to 63% near the height of the late 90’s tech boom. We at FMW continue to believe that the trend towards greater wealth concentration is an impediment to better rates of economic growth. In normal years, roughly two-thirds of GDP is comprised of consumer spending. If most of the wealth and income is concentrated within a relatively small percentage of households, it is less likely to be spent. Recent news reports suggest U.S. companies are struggling to find workers as the economy starts to re-open. The reasons cited in surveys for this include safety concerns, childcare concerns, the stimulus checks, and a mismatch between worker skills and the available jobs. As a result of this dearth of workers, wages are starting to rise fairly significantly. Anecdotally, Wal-Mart recently announced wage increases for 425,000 employees, lifting its average to $15 per hour. Amazon plans to increase wages between 50 cents and $3.00 per hour for more than 500,000 of its workers. Costco lifted its starting wage to $16 an hour. These wage increases put pressure on company earnings and frustrate investors and CEOs. However, these increases are very positive from the standpoint of getting more money into the hands of the working class.
Tracking income, wealth, and the velocity of money is critical to assessing the health of the economy. When a lot of dollars are in just a few hands, they can’t move in and out of the economy often enough to meaningfully increase demand. This isn’t a social comment or call for redistribution. It simply recognizes where our stock market wealth resides and the extent to which it can reliably lead to economic growth. I should also point out that when we look at the declining percentage of stock ownership by the bottom 50%, we need to remember that the decline is relative and not absolute: the bottom 50% could own a higher dollar amount of stocks than ever before; but if the top 50% increased more, the percentage ownership for the bottom 50% would diminish.
Too often lately, discussions of this historical data, driven by fiscal and monetary policies employed to save the economy from depression and soften more dire economic downturns, are blamed as a right-wing conspiracy to make corporations and the wealthy even wealthier. This is just wrong. While the policy had the enriching effects of which it is accused, it was not a conspiracy to do anything other than save the US economy. Is the income and wealth disparity an economic problem? Yes. Could it stoke societal tensions and anger? Yes. But it also, as flawed a policy as it has been, has worked. Another Great Depression with bank failures and food lines was averted. Even the poorest benefited from the broad economic rebound. I feel the need to mention this at a time when there seems to be too much that divides us and too much about which we might be angry. Let’s view economic data as factual data. Let’s have faith in our great country. Let’s be sensitive and caring about the most vulnerable among us. And let’s remember how much stronger and better we are as a United States, an aspirational people pursuing a common goal of being a great and shining city upon a hill.