Household Wealth Rises, Will Job Growth Follow?

May 09, 2013

This week’s chart illustrates recent shifts in the personal savings rate and household net worth. As seen in the graph, household wealth is approaching its pre-recession level as the recovery in the stock and housing markets has helped repair household finances. The Federal Reserve’s tactics of holding interest rates low and offering stimulus in the form of Treasury and mortgage purchases seem to be creating its intended wealth effect, albeit slower than anticipated.

As household finances improve, consumers will be less inclined to save and more likely to purchase goods and services. Currently, the personal savings rate is hovering around 2.5% which is substantially less than its recession high of 6%. If the current rallies in the stock and housing markets continue, we should see a trickledown effect to many sectors of the economy, most notably jobs. In theory, an increase in consumer demand should lead to an increase in labor demand as companies ramp up production in response to more consumer spending. Additionally, labor demand will increase wages, further perpetuating the wealth effect.