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U.S. households and businesses facing unequal recovery, Fed report finds

05/06/2021 | 05:24pm EDT
FILE PHOTO: A view shows newly built houses in Chico, California

(Reuters) - Businesses and households improved their balance sheets late last year with the help of government support, but some consumers and the smallest businesses continued to struggle, according to a report released on Thursday by the Federal Reserve that highlighted the unenven nature of the economic recovery.

"Vulnerabilities from both business and household debt have declined," the Fed said in its biannual Financial Stability report. "Even so, many businesses and households remain under considerable strain."

Cash piles and deposits for households on the aggregate nearly doubled in the second half of 2020 to roughly $3 trillion from about $1.6 trillion. Most household borrowing was also concentrated among borrowers with high credit scores, the Fed said.

On the business front, short-term delinquencies "have declined notably since last summer" and long-term delinquencies "ticked down, indicating an improvement in firms' balance sheets," the report found.

But the overall figures masked some of the ongoing challenges faced by households with lower credit scores and the smallest businesses.

Pandemic-related job losses were heavily concentrated among consumers who were already "financially vulnerable, including many lower-wage workers and racial and ethnic minorities," the Fed said.

Disparities were also clear in the credit card data. Delinquency rates remained flat for borrowers with stronger credit, but rose slightly in December for borrowers with subprime credit scores.

There was some good news about small businesses - fewer said they expect to need financial assistance as more pandemic-related restrictions are lifted.

However, some of the smallest businesses are not yet in the clear. Many of the funding sources used by small- and medium-sized businesses, including loans from banks, investors and private credit funds, tightened over the past year, "potentially leaving these smaller firms more vulnerable to shocks," the Fed said.

(Reporting by Jonnelle Marte in New York; Editing by Matthew Lewis)

By Jonnelle Marte

© Reuters 2021
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