Household Net Worth Still Almost 20% Higher than in 1999

The Fed today released its always-fascinating look at the state of household finances, which is summarized in this chart. Some quick observations of mine:

Even though the S&P 500 fell 12% in the first quarter, household net worth fell by only 2.5%, thanks in part to an increase in Treasury bond holdings and a reduction in liabilities, which is indicative of a higher savings rate.

The big drop in net worth since 2007 (-$12 trillion) was due mainly to the decline in the equity market (-$10 trillion), and secondarily to the decline in housing prices (-$3 trillion).

With the stock market up almost 20% so far this quarter, net worth is likely up significantly, even after assuming a continuing decline in housing prices.

Even after all the destruction in financial and real estate holdings in the past year or so, household net worth was still almost 20% higher ($8 trillion higher) at the end of the first quarter than it was at the end of 1999, at about the time the economy and the markets peaked.

The ratio of household liabilities to disposable personal income has fallen by 8% since 2007. Households are deleveraging, and they will probably continue to do so, since homeowners' equity as a percentage of household real estate has fallen from 58.5% in 2005 to 41.4%.

Increased savings, however, does not mean a shrinking economy. Money saved by one person must necessarily be spent by another.

Comments

[Birdsnest:]

Hmmm, so household net worth is 20% higher than 10 years ago eh? Let's see, that works out to a +1.9% annual rate of growth. Hmmm, that seems lower than inflation to me? Let's look it up... why yes it is! Inflation (CPI) has moved from 166.6 to 215.3 over the same period, or an average annual growth of +2.6% and total growth of 29.3% (and many believe the CPI undercaptures inflation -- plus, it presumes one is simply treading water with regard to one's "basket of goods' consumption, never gaining in standard of living). So... +29.3% in CPI, vs. +20% (give or take) in net worth. That sounds like MORE than a lost decade to me. Probably more like 15 years.

Jun 11 02:57 PM

[Dave Wrixon:]

Much depends on whether you accept the inflation rates built into the data.

Jun 11 02:58 PM

[Bob 123:]

....and then in 2000 the market tanked just before the presidential elections as gas prices went up about 50%.
So in other words, the eight years of Bush/Cheney at the helm (the "CEO administration") did nothing for the American people. In fact they came out a whole lot worse with the spiraling deficits (that were originally surpluses) and the massive growth of government. It's amusing how so many are now trying to pin this all on Obama. Maybe we need another Neocon team of the Bush/Cheney mold to set things right, and we just might get it if Obama fails. In a sad way, we would deserve it.

Jun 11 03:31 PM

[Stock Marke...:]

This is not one of the better Beach Pundit articles, agreed. Maybe he had nothing to really talk about and wanted to get something posted. The inflation details is so blatently obvious, I wonder if he factored it in..

Jun 11 05:20 PM

[jeremiah74:]

"Money saved by one person must necessarily be spent by another."

this is green shoot economics.. and it will soon be proved wrong

Jun 12 03:41 AM

[TracingError:]

Let's see, would it be cynical of me to suggest that what this implies is household net worth has at least 20% more to fall? Greenspan's "irrational exuberance" comments were in December 1996. That's my baseline for where the economy will fall to.

Jun 12 08:41 AM

[tginomorebush:]

And it is 20% plus higher than 1989 and 1979 and 1969 and 1959!
king george iii and "shooter" administration killed the U.S. and World economy in just 8 short (seemed actually very very long) years!

Jun 12 08:54 AM

[Bull Run:]

Pundit: America's Net worth is actually (negative). The big lie is the Fed's calulations of household values. The Feds view and what reality is somewhere in the twilight Zone. I reviewed their numbers. They are using small little revisons in household worth which doesn't hold up in the real housing market

Jun 12 09:39 AM

[Bull Run:]

Pundit: Take 10 average American Households, not Wall Street pimps living in Conn. or hobo's living under a parkway, but 10 families across America. 6 out of 10 will have a (negative Net worth). From 2005 till now 79,000 homes in Phoenix went bankrupt. That's 250,000 homeless American's in just one city..The Feds can inflation adjust, regional adjust, and seasonal adjust data figure until they prove politically correct, and wall strret positive, but 1/10 Americans are on food stamps, the homeless and unemployed and American's with NO health care is America's little dirty secret, to keep the rest feeling positive and the world in the dark.

Jun 12 10:03 AM

[pokernut:]

What a joke. Who would be naive enough to believe data provided by the Federal Reserve? I have had enough of this shill. He has been bullish on stocks all the way down.

Jun 12 10:15 AM

[manya05:]

Wow, how a bad article can elicit so many great comments. I think people have a better understanding of how things are than the pundits themselves.

Jun 12 11:14 AM

[Alphameister:]

Whatever propensity to save that America felt when the S&P was at 666 has presumably been altered favorably by the subsequent advance of almost 40%. For the vast majority of people who have a job and do not consider the current market value of their home in making spending decisions, the financial picture has brightened considerably during the past three months. Spending by those less fortunate will at least be supported by various social safety nets.

Helpful insights, though I don't accept your last sentence.

Jun 12 02:34 PM

[YoYoMama:]

I actually agree with the last sentence. When one saves money, you are giving a financial institution more money with which to lend.

Isn't part of our economic troubles the fact that institutions have no money to lend? Why are we not talking about the fact that part of this problem may stem from the fact that we as Americans have been TAKING money from the banks, and not depositing it back as savings?

Wouldn't it stand to reason, then, that as savings increase, the liquidity of commercial banking institutions will increase, and therefore the availability of credit will increase? Which will help in the economic recovery?

The generation that lived through the Depression become voracious savers. This fact did not send the next several generations into economic collapse. On the contrary, the late 1940s and the 1950s saw a boom in the stock market and economy.

Jun 13 10:06 AM

[Gregman2:]

Someone's been inhaling the white smoke of green shoots.;-)

Jun 13 10:11 AM

[YoYoMama:]

Like Bill Clinton I may have smoked it but I didn't inhale :)


On Jun 13 10:11 AM Gregman2 wrote:

> Someone's been inhaling the white smoke of green shoots.;-)

Jun 13 11:33 AM

[jeremiah74:]

the classical phrase (Keynes) is that one man's saving is another's lost income. this is also what is referred to as the paradox of thrift.
you have to think along those lines

it is true that saving get recycled into the economy. but banks have to keep reserves against your 1$ saved so they only lend out less. and then for now, your savings is used to plug holes in balance sheets and not used to increase credit. and not only that balance sheets need to be repaired but there is a risk averse attitude to on the part of lenders and borrowers alike. governements are now trying to increase confidence and thereby get you (the potential borrower) to slow down your balance sheet repair.

Jun 15 03:06 AM