It’s not surprising that the median income in the U.S. has increased, considering the healthy stock market and raising property prices.
In the last quarter of last year, the American household net worth– which is a number determined from the worth of assets like stocks and real estate minus liabilities like credit card debt and mortgages– spiked by $2 trillion to $98.746 trillion.
In January, the medium household income increased to $59,055 from the $58,829 average in December, according to Seeking Alpha.
Although JPMorgan Chase economist Michael Feroli said the ratio of wealth is “at pretty dizzying levels right now,” he pointed out that Americans aren’t saving like they did in 2015.
In 2017, the saving rate dropped to 3.74% versus the 5.98% in 2016 and the 7.19% in 2015.
Americans are also still borrowing. The average household debt increased at an annual rate of 5.2% in the fourth quarter of last year, even though the Federal Reserve continues to increase interest rates.
So does this mean the economy will burst, like it has in the past?
“Household wealth hit a level of just over six times disposable income in the first quarter of 2000, a year before the economy tipped into recession when a tech-stock bubble burst. Wealth touched 651.8% of disposable income in the first quarter of 2006, less than two years before the souring housing boom triggered a recession that began in December 2007,” writes the Wall Street Journal. “However, household debt hasn’t run up as fast in this cycle as it did in the 2000s, and stock valuations aren’t as high this cycle as in the 1990s stock boom. Thursday’s report underscored the extent to which rising stock and real-estate prices are boosting household wealth, as the current economic expansion nears its ninth anniversary.”
The S&P 500 spiked by 19% and the Dow Jones Industrial Average gained 25% in 2017.
But, the U.S. home prices are climbing too.
“Meanwhile, the value of households’ real estate increased $511.2 billion, reflecting continuing increases in home prices. U.S. house prices rose 1.6% in the fourth quarter, according to the Federal Housing Finance Agency’s house price index, and rose 6.7% on the year,” writes WSJ. “In addition to the buffer from home equity, households also have $9.272 trillion in deposits, which include checking and savings accounts and certificates of deposit.”
This is just the beginning. White House officials expect the new GOP tax plan to increase the average American household income by $4,000 a year.
The Heritage Foundation estimates that the tax plan “will increase the level of gross domestic product in the long run by 2.2 percent. To put that number in perspective, the increase in GDP translates into an increase of just under $3,000 per household.”
Author’s note: This is all part of the Trump Effect and 2017 was just his administration’s first year.