Sunday, December 11, 2016

Richer than ever


Last Friday the Fed released its Q3/16 estimate of the balance sheets of U.S. households. Collectively, our net worth reached a new high in nominal, real, and per capita terms. We are living in the weakest recovery ever, and things could and should be a lot better, but it is still the case that today we are better off than ever before.


As of September 30, 2016, the net worth of U.S. households (including that of Non-Profit Organizations, which exist for the benefit of all) reached a staggering $90.2 trillion. To put that in perspective, it's about one third more than the value of all global equity markets, which were worth $66 trillion at the end of September, according to Bloomberg. I note that household liabilities have increased by only $300 billion since their 2008 peak; the value of real estate holdings is up about 5% from that of the "bubble" high of 2006 (10 years ago!); and financial asset holdings have soared since pre-crash levels, thanks to significant gains in savings deposits, bonds, and equities.


In real terms, household net worth has grown at a 3.6% annualized rate for the past 65 years.


On a real per capita basis (i.e., after adjusting for inflation and population growth), the net worth of the average person living in the U.S. has reached a new all-time high of $278K, up from $62K in 1950. This measure of wealth has been rising, on average, about 2.4% per year since records were first kept beginning in 1951. By this metric, life in the U.S. has been getting better and better for generations.


The ongoing accumulation of wealth is not a house of cards built on a bulging debt bubble either, regardless of what you might hear from the scaremongers. As the chart above shows, the typical household has cut its leverage by over 30% (from 22% to 15%) since early 2009. Households have been prudently and impressively strengthening their balance sheets over the past seven years by saving and investing more and by sharply reducing the use of debt financing. 

10 comments:

Benjamin Cole said...

Great commentary, charts.

Benjamin Cole said...

Great commentary, charts.

steve said...

Of course Trump didn't win because America is richer than ever. Quite the opposite. America is less content than ever. Americans who voted for Trump are sick and tired of status quo. Last year, heroin related deaths outnumbered gun related deaths-for the first time. The left spends plenty of time railing against the first amendment but not so much re the US drug problem. In my home state of NH, one of the lowest crime and highest per capita income state in the union we have a terrific drug problem. Trump is disruptive. People used to status quo hate Trump. Hell, I didn't even vote for him! But maybe that is EXACTLY what this country needs. The people who made DT our next president are not well represented on the "Richer than ever" chart and I for one would not mind some disruption-even at the cost of my net worth to give them a hand UP.

endzeit14 said...

MEDIAN would be more interesting, not average.

Frozen in the North said...

Steve

You may be right that Trump is exactly what America needs, my take is that Trump is exactly what America deserves. His tweet continue to be crazy; laments the cost of the F35, and in the same week wants to increase the size of the Navy back to 500 vessels (sure a $40 million aircraft is expensive), but its a lot cheaper than a frigate.

America will get what it wants a President with simple solution to complex problems -- his Taiwan play was amusing for 5 minutes now the Chinese are pissed off (and don't think the Taiwanese will thank America). Europe is re-considering its independent nuclear strike capability -- Japan and Korea are worried that America will disengaged from the far East and the Korean Peninsula). All these cheap shots have a cost to America -- its just that it take a bit of time before that bill come along.

But I am certain that health care, Education, and your freedom of speech are going to be well protected by Trump...

Marc Sargen said...

Credit Suisse just recently did a big report on global wealth from 2000 to today.

The US is one of the richest places in the world on mean wealth per adult @ $344,692 for 2016 vs. $244,365 for France or $288,808 for the UK. When you get to the median wealth we're not that hot: US $44,997, vs France $99,923 or the UK $107,865. The US has a lot more very rich people & a lot more people with negative net worth because they're in debt.

For all the doubter though both mean & median are going up to record levels.
2000 Mean $206,116 Median $26,687
2008 Mean $239,334 Median $30,839
2012 Mean $285,374 Median $36,995
2016 Mean $344,692 Median $44,997

In a reply to Steve. The US can be both richer than it ever was & still not content with what it has even for the average person. A lot of people are not content because they've lost out when compared to others both nationally & internatinoally but there are not a lot of people would really would want to go back the 100% identical life of a similar person in the 50's, 70's, or even 90's The good stuff gets remembered & bad only comes up in Grandpa's tales to the grandkids when he walked to school in the snow uphill both ways.

Scott Grannis said...

Not sure I believe that median wealth in the US is as low as $45K, and Credit Suisse's numbers don't match the Fed's (Fed 2016 mean $278K, CS mean $345K), so we may be comparing apples to oranges. But I would argue that even if median US wealth is much lower than mean wealth, that is a misleading statistic. Even the poorest among us enjoy the benefits of ALL the wealth in this country: roads, bridges, telecommunications, mobility, transportation, abundant food, access to plenty of cheap stuff, defense, science, the arts, research, universities, etc. Put a US billionaire in Botswana and he'll be missing out on plenty of the things that the average person takes for granted here.

Ramesh Pudhucode said...

Mr. Grannis, First your comparison with Botswana is ridiculous. Compare with Canada, Switzerland, Franch, germany, Australia, Japan.

Second for a guy making $7.00 an hour talk about how rich he is based on the bridges.

Can't be a poorer comment than this

bob wright said...

Scott,

This is not directly related to your post; but it is indirectly related.

"The Fading American Dream"

Chetty and Hendren have a new study that says only about 50% of 30 year olds today will earn more than their parents.

see: http://www.equality-of-opportunity.org/

I'd be real interested in your thoughts on this study.

Is the trend correct - even if the exact percentage might be different based on adjustments one might make to assumptions like the inflation index used.

With the FED reporting that Nonfarm Business Sector Real Compensation per hour has almost tripled since 1947, how can Chetty determine that only 50% of children earn more than their parents?

see: https://fred.stlouisfed.org/series/COMPRNFB


How can household and per capita wealth be steadily increasing if the percentage of children who make more than their parents has been decreasing since 1940?

Thank you in advance for any thoughts you'd be willing to share.

Bob Wright

Scott Grannis said...

Re

My simple answer (very simple) would be that it is becoming harder and harder for people to climb the ladder of success these days because of huge tax and regulatory burdens. That doesn't stop progress, however, since those who are successful can end up being wildly successful, and creating in the process lots of new capital that is broadly shared. (e.g., young people may not earn very much but they have access to communications infrastructure—smartphones, internet, online search—that were unavailable at any price previously.

And of course the environment one grows up in is important as well, and I think it's clear that for decades the social fabric—particularly traditional families—of the country has been steadily fraying.