By Matthew Shaw and Karen Petrou
Every three years, the Federal Reserve releases a unique, illuminating data set, the Survey of Consumer Finances (SCF). The most recent report covering 2016 to 2019 comes at a time of acute political risk for the U.S. central bank due to growing demands for a third, “racial-equity” mandate and heightened recognition of the inequality impact of post-crisis monetary policy. Perhaps for this reason, the Fed’s qualitative release and much subsequent media coverage highlighted what the Fed described as meaningful reductions in both wealth and income inequality. Would it were so – percentages sometimes work in the Fed’s favor, but real dollars in people’s pockets, or the acute lack thereof, don’t.
What the SCF Really Shows
Seeing the 2016-2019 results in the prism of real dollars for real people tells us a lot:
- Although the Fed suggests that the income distribution may have narrowed between 2016 and 2019 based on increases in real median family income and falling real average income, a closer look at the data shows how meaningless this was. The top 10% of the income distribution saw its median income increase by $13,300 (4.8%), while the bottom 20% saw a median increase of only $130 (0.8%) over three years.
- The Fed less cautiously asserts that families at the top of the wealth distribution saw only a minor increase in their median wealth between 2016 and 2019 while those at the bottom saw “substantial gains.” This is, though, based on percentage changes, not on actual dollars. A 182% increase for the bottom 25% was worth only $200, increasing this group’s median wealth from $110 to $310. A 2.4% increase for the top 10% amounted to more than $60,000, with a median net worth of $2,598,400.
- While the Fed highlights that Black and White families experienced similar growth in median income in percentage terms, this masks the extent to which white family median income still exceeds that of Black families. In dollar terms, an 8% increase for Black families was worth $3,010, while the 7.1% increase for white families was worth $4,590.
- The Fed also takes comfort in percentage increases in minority-family median wealth compared to whites. Real dollars tell a different story: Black family median wealth increased $5,860 over three years while White family median wealth rose $7,230. Hispanic families did see a large median wealth increase – $14,010. However, even with this gain, Hispanic family median wealth stood at just $36,050 while White family median wealth was $189,100. Black median wealth is even lower than Hispanics’, at just $24,100.
- The Fed also highlights that corporate-equity ownership increased between 2016 and 2019, driven by investments of the lower half of the income distribution. However, the median value of stock holdings fell for the 2nd, 3rd, and 4th income quintiles, as well as for the 80-90% group, accounting for 7 in 10 households. The top 10%’s median value of stock holdings increased $44,000 (11.3%); the bottom 20%’s median increase was only $530 (8.6%).
The Fed does highlight an increase in household debt obligations over the period, but often does so only in aggregate. However, when these data are disaggregated by income, it turns out that equality-meaningful median debt increased for all groups except the bottom 20% and top 10%. While the Fed routinely described the economy as in a “good place” during the years covered in the new SCF, most Americans needed to take on additional debt to make ends meet
To be sure, the share of bottom wealth quartile households with home-secured debt has halved since 2010, decreasing from 20% to 10%. The share of bottom-quintile households by income with home-secured debt also decreased, falling from 15% to 12%. As we have previously noted, homes account for the vast majority of wealth for middle-class households. The potential inability of lower-income and -wealth households to get a mortgage thus eliminates a major avenue into the middle class.
From Dollars to Equality
As noted, the Fed says its survey data likely indicate a narrowing of U.S. economic inequality. Do they?
Sadly, no. Looking at the wealth-share data in the Fed’s Distributional Financial Accounts by race dims the Fed’s pride in its racial-equity achievements. White households did loose wealth share over the SCF’s 2016-2019 span – decreasing more than a full percentage point – but Black and Hispanic families also lost wealth share (0.2 percentage points and 0.6 percentage points). In fact, only families the Fed groups together as “other” gained a bit of wealth share.
These wealth-share data also demonstrate that the top 10% and the bottom 50% wealth groups each increased their share of U.S. wealth by the same amount – half a percentage point. The distribution thus appears to have neither narrowed nor widened. However, it did become more hollowed out – the gains of both groups came at the expense of the 50-90% wealth group, whose share decreased by one percentage point. We wrote in 2017 about the hollowed-out U.S. middle class and again in 2019 when we questioned rosy Fed statements about economic equality. The Fed has since grown more cautious about the middle class, but its latest spin on the SCF suggests it’s still looking for validation when none is to be found.