[Asia Economy New York=Special Correspondent Joselgina] "The rich will suffer greater damage." As recession warnings continue into the new year, a warning has emerged that the so-called 'Richcession' will sweep across the United States.
The Wall Street Journal (WSJ) reported on the 3rd (local time) the newly coined term Richcession, combining 'Rich' and 'Recession.' Unlike past recessions where low-income groups suffered the most damage and the wealthy only experienced inconvenience, this time, it is analyzed that the wealthy may face greater shocks than usual.
This is closely related to changes in the U.S. economic environment such as stock markets, savings, and wages since the spread of COVID-19. Following the pandemic, federal government fiscal spending and relief measures have led to a sharp increase in the net assets of low-income groups, while recently, the assets of the wealthy have actually decreased.
According to the Federal Reserve, the central bank, as of the third quarter of last year, the net assets of households in the top 20% income quintile decreased by 7.1% compared to the end of 2021. WSJ cited the New York stock market, which recorded the worst annual returns since the 2008 global financial crisis, as the reason for this decline in the wealthy's net assets. Last year, the Nasdaq index, focused on tech stocks, fell by more than 33% annually. This means that the funds available to prepare for a recession have decreased compared to a year ago.
Despite the overheated labor market, mass layoffs are occurring in the U.S., especially among high earners in big tech companies, which is also a negative factor for high-income groups. WSJ reported, "Recent layoffs have disproportionately affected high-income earners."
On the other hand, low-income groups are considered better prepared to cope with a recession in terms of assets and job stability than before. During the same period, the net assets of households in the bottom 20% income bracket in the U.S. increased by 17% compared to the end of 2021. Compared to the pre-pandemic period at the end of 2019, it rose by a remarkable 42%. This is attributed to various federal government subsidies and support funds being concentrated on low-income groups during the pandemic.
Along with this, the boom in the labor market and significant wage increases also helped these households. According to the Atlanta Federal Reserve Bank’s wage tracker, as of November last year, the wage increase for the bottom 25% of workers was 7.4%, far exceeding the 4.8% increase for the top 25%. Industries that employ more low- and middle-income workers are still experiencing labor shortages, so this wage growth trend is likely to continue for the time being. WSJ evaluated, "Even if a recession occurs, job stability in service industries where low-income workers are employed will be relatively higher than that of high-income groups."
Concerns about a recession persist. In a Gallup poll released that day, 79% of respondents?about 8 out of 10 Americans?said "the economy will be difficult this year." Additionally, 65% expected high inflation to continue this year. More than half, 53%, responded that unemployment would soar. According to the U.S. Bureau of Economic Analysis, as of November last year, the savings rate from Americans' income was 2.3%, a significant drop from the pre-pandemic average of 6.3%. Investor Michael Burry, who predicted the 2008 global financial crisis, stated, "A recession in the U.S. is inevitable."
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