Thursday, June 11, 2009
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 the 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.
Posted by Scott Grannis at 9:44 AM