Big Picture: private sector financial health excellent

Today the Fed published its estimates of the private sector's balance sheet and net worth, and it's nice to see that the numbers reflect very healthy conditions. (This is not a pitch that you will find in tonight's State of the Union address, but if Biden were smart he would reference these charts.)

Chart #1

As of year end 2023, the net worth (total assets minus total liabilities) of the US private sector was $156 trillion. As Chart #1 shows, most of the gains in net worth resulted from increased holdings of financial assets, which in turn represents savings and investments. Since 2007 (just before the onset of the Great Recession) financial assets have increased by 120%, while real estate assets increased 90% and debt increased by only 41%. 

Chart #2

But we can't ignore inflation, especially since we are only just now coming out of the highest inflation episode this country has experienced since WWII. Chart #2 adjusts the net worth numbers for inflation, and here we see that the inflation-adjusted peak in net worth was $164 trillion in late 2021. But as the chart also shows, the upward trend of real net worth remains unbroken.

Chart #3

We can't ignore inflation and we can't ignore the fact that the US population continues to grow; with more people working, it's natural to expect improvement in nearly all measures of net worth. So Chart #3 adjusts the net worth data in Chart #1 for both inflation and population growth. Here we see that per capita real net worth today is about 10-15% above its long-term trend. 

This chart is saying that the net worth of the average resident in the US is about $460K. While of course there are many billionaires and many with little or no net worth, the value of the homes, buildings, factories, roads, infrastructure, etc. in this great country add up to about a half million dollars per person. Everyone is able to enjoy the benefits of these assets, and our economy is able to employ just about all who are looking for a job. (The BLS recently reported that there are currently almost 9 million job openings and a little over 6 million who are actively looking for work. An individual's skills don't always match what employers are looking for, and salaries are not always as much as an individual might like, but there is no shortage of jobs in this country right now.)

Chart #4

Total federal debt owed to the public has reached almost 96% of GDP, and that is up by a staggering amount since 2007 when it was only 35% of GDP. But it is still only a fraction of the private sector's net worth, as Chart #4 shows. To simplify, households are asset-rich at a time when the public sector is heavily indebted. A large part of the government's debt, of course, is owned by US residents. 

Chart #5

Since the Great Recession, the private sector has reduced significantly its financial leverage. The Great Recession was caused in large part by a borrowing binge on the part of the public which imploded when real estate prices collapsed. We do not face that same problem today, that's for sure. Households' finances haven't been this solid since the late 1970s. 

Chart #6

Chart #6 shows the financial burdens of the household sector, defined as payments for mortgage & consumer debt, auto loans, rents, homeowner's insurance, and property tax as a percentage of disposable income. Looked at from an historical perspective, things have never been so good, except for the Covid era, when government stimulus payments temporarily showered the private sector with liquidity.

All of this is not to say the state of the union is wonderful. There is a litany of social and political problems that need addressing, and many people today are facing hard times if only because of the fallout of our recent inflation binge. I think the message here is that things aren't as bad as people seem to think they are. And of course, it's also true that things could be a whole lot worse than they actually are. 

I think the stock market is in substantial agreement with me on this.