Household Net Worth's Big Declines - Why a Graph Tells a Better Story

The Federal Reserve announced on Thursday that U.S. household net worth fell by $1.3 trillion in the first quarter, which sounds like a pretty big deal.

However, sometimes percentages and graphs tell a better story when it comes to numbers like this.

For example, since its peak in the third quarter of 2007, household wealth has decreased by 21.6%, or more than a fifth, which is the most dramatic fall in the series since reporting began more than a half century ago.

And just to emphasize how big of an economic shock this wipeout has been, take a look at the accompanying chart, which plots quarterly values of the 12-month change in net worth as a percentage of nominal gross domestic product.

How anyone could think that the effects of so much wealth destruction in such a short period of time could be quickly overcome is beyond me.

click to enlarge

Comments

[onebir:]

It's certainly a huge decline & will have lasting effects. But net wealth is the difference between two numbers that
a) are stocks &
b) are huge in GDP terms
c) probably has quite small spending multipliers

So while scaling changes in net wealth by GDP gives you an impressive looking graph, it doesn't necessarily make good economic sense...

Jun 12 08:31 AM

[1RuleNoRules:]

How much of that wealth was unrealized property value?
Paper wealth that was not seen and was in real estate appraisals over that 15years.

Jun 12 12:32 PM

[Stephen Kanitz:]

Great example of how to lie with statistics. It leads people to beleive that their home net worth is 50% less than it used to. It is 50 % less from its 2008 bubble value. Factor in all those positive changes since 1950, and you get a totally different picture.

Jun 12 05:14 PM

[Jeff:]

It has and will change spending habits for some time to come.

As 1RuleNoRules said, much of this values was on paper, but many folks mortgaged that paper and spent it. Those are the folks that are dragging us all down.

The baby boomer, who planned to sell their sky high stocks and inflated houses have had their grandiose retirement plans diminished forever. They must now drastically curtail their spending. There are 70 million of them, saving like never before.

We will survive, but on a more realistic basis.

Jun 12 06:45 PM

[CLH:]

Man is infinitly adaptable. You will be surprised at how quickly he will adapt to this new loss of net worth. Life will go on.

Jun 13 06:59 AM