The Associated Press has reported that Americans’ wealth declined this spring for the first time in a year, as stocks and home values fell. At the same time, corporations increased the size of their cash stockpiles.
According to the Federal Reserve’s Flow of Funds report, household net worth dropped 0.3 percent to $58.5 trillion in the April-June quarter. Corporations, on the other hand, held a record $2 trillion in cash at the end of June, an increase of 4.5 percent from the January-March quarter.
As the AP concludes: When people feel poorer, they spend less. That slows growth. Businesses then respond by cutting back on hiring and expansion plans. It can become a cycle.
Pretty simple.