ORLANDO, Florida (Reuters) - As the Fed prepares to cut interest rates, U.S. households are sitting on their largest accumulation of net wealth in history. By some financial measures, U.S. consumers are better off than they've been in decades.

    This financial cushion could increase the likelihood that the economy's descent will be more glide than crash. And it suggests that the take-off in the economy and markets that follows could be quicker and steeper than in previous cycles.

    Federal Reserve figures last week showed that increases in home prices and the stock market lifted households' net worth in the second quarter by $2.8 trillion to a record $163.8 trillion. Overall, household net worth soared by nearly $47.0 trillion from the pre-pandemic peak less than five years ago.

    A closer analysis of the numbers behind the latest headline figures points to even stronger underlying foundations.

    Net wealth as a share of disposable personal income - a broad, relative measure of the household sector's financial wellbeing - has climbed to 785%, the highest point in two years, while household debt as a share of GDP has fallen to 71%, the lowest level in 23 years.

Even though credit card and other forms of delinquencies are on the rise, most households aren't struggling with large debt burdens.

   In short, U.S. households as a whole have generally had little trouble withstanding the 525 basis points of Fed rate hikes between March 2022 and July 2023.

    "While it is popular to focus on the demise of American society and the U.S. economy, the reality is that American households have never been wealthier, and the level and growth of net worth still far surpasses any other economy globally," Lazard's chief market strategist, Ronald Temple, wrote on Friday.

CONCENTRATED AT THE TOP

But even if this rosy picture holds in the aggregate, not everyone is benefiting equally. In the U.S., 25% of assets are held by 1% of the population and almost 80% is held by 20%, meaning rising house and stock prices have benefited a relatively small cohort of the population.

The lagged impact of multiple years of negative real wage growth and the running down of pandemic-related stimulus is starting to show. The national saving rate fell to 2.9% in July, approaching the historical lows recorded in the 2005-2007 run-up to the Great Financial Crisis.

Many households can no longer rely on excess savings and may be reluctant to borrow to fund future expenditures. Does that mean consumption will soon crater?

Probably not. For better or worse, the consumer spending engine driving the U.S. economy is fueled by the well-off. Economists at BNP Paribas estimate that the top 20% of income earners account for nearly 40% of total spending, and the richest 40% account for more than 60% of all spending.

In fact, rising stock and house prices - which, again, only benefit a sliver of the population - are expected to lift consumer spending this year by $246 billion, according to BNP Paribas economists' estimates earlier this year. That would be the third-largest boost to U.S. consumer demand in 25 years, adding roughly 1 percentage point to 2024 GDP growth.

"Ultimately it is the labor market that will matter much more for a larger slice of households, and in aggregate, there are no significant signs of stress," says BNP Paribas' senior U.S. economist Andrew Husby.

Economists at Goldman Sachs reckon that consumers' disposable personal income is actually being understated by nearly $400 billion. If so, the saving rate is an estimated 5.2%, suggesting downside risks to spending are more limited than perhaps thought.

AS GOOD AS IT GETS?

History shows that, unsurprisingly, Wall Street tends to do well after the Fed starts cutting rates. While the record is slightly mixed, U.S. stocks on average drift higher in the year after the Fed's easing cycle ends and typically rise by as much as 20% if there is no recession, according to analysts at Raymond James.

Spending - and thus corporate earnings - could obviously slow sharply if the labor market were to crater. But that's not most people's base case. Even if that were to occur, the response by the Fed would likely be a reasonably solid shield for financial markets.

Consider that markets are currently pricing in 250 basis points of rate cuts between now and the end of next year - and that's with the expectation that there won't be a severe recession. If there is, markets could get even more help from the Fed.

So even if economic turbulence puts consumers under stress, households appear to be in as strong a position as they could hope, meaning they - and markets - are relatively well positioned to face these potential headwinds.

(The opinions expressed here are those of the author, a columnist for Reuters.)