Thursday, June 5, 2014

Solid gains in household net worth

U.S. households continued to enjoy strong gains in net worth in the first quarter of this year, according to just-released data by the Federal Reserve. Thanks mainly to gains in financial assets and rising real estate prices, net worth rose to a new high in nominal, real, and per capita terms. In the 12 months ending March, 2014, household net worth increased almost 11%, or almost $8 trillion. (For purposes of comparison, consider that the market cap of global equities rose by $9 trillion over the same period.)

Household debt has not increased at all in over 7 years. Since their recession lows, real estate valuations have increased by almost $5 trillion, while the value of financial asset holdings have increased by more than $20 trillion.

Real household net worth now stands at a new high, and is on track with its long-term average annual growth rate of just under 4%.

Gains on a per capita basis have been a little less (population has grown by a little more than 1% a year), but are still impressive. Real per capita net worth has now exceeded its 2006 high.

A few trillion here, a few trillion there, and you have the makings of some serious gains in prosperity. Since 1950, real per capita net worth has more than quadrupled.


William said...
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William said...

The Conference Board Economic Index® (LEI) for the U.S. increased 0.4 percent in April to 101.4 (2004 = 100), following a 1.0 percent increase in March, and a 0.5 percent increase in February.

“The LEI rose for the third consecutive month, driven largely by improving housing and financial market conditions. This latest report suggests the economy will continue to expand, and may even pick up steam through the second half of the year.” said...
This comment has been removed by the author. said...

Yep. Matches what I see in our financial situation. Debt much reduced over 2006, but the asset and income side up. Interest rates on the debt side lower, too.

Interesting to see a chart showing growth of REAL per capita net worth over time.

Anonymous said...

A little stock market correction of 10-15% or and increase in interest rates will take a bit of the bloom off the rose of financial assets.

Really, higher asset prices are not doing that much as people are still saving by putting new money into stocks and bonds. And into savings accounts.

And if consumer don't use their home equity as an ATM machine you really don't get enough spending.

What a dilbert. If you can't get consumers to do their job by spending their savings and going into debt you have to force inflation to force them to do so.

McKibbinUSA said...

Would enjoy hearing Scott's views of what the ECB move to negative interest rates implies for the future of Europe -- is deflation an issue in Europe, but not the US -- might the Fed consider negative interest rates as well?

Bill said...

Scott, you told me previously the name of your charting software, and I have misplaced your response. Would you please tell me again the Mac software you use for charting.


Benjamin Cole said...

I hate to sound like Piketty...but can household net worth increase by four percent annually in the long run, while the economy grows are two-three percent annually?

Scott Grannis said...

Bill: I use DeltaGraph for my graphics, and it runs on either Mac or Windows.

Scott Grannis said...

Benjamin: if the economy never does better than 2-3% growth per year, then I would expect to see the trend growth rate of net worth decline somewhat from its long-term average.

Scott Grannis said...

WMcK: I think the ECB is over-reacting to the supposed threat of deflation. Very low inflation is not the problem they think it is. Lowering interest rates by a fraction is unlikely to have significant consequences. QE efforts, may help, though, as they appear to have helped in the US, but mainly by meeting the demand for safe assets.

In any event, we'll have to watch Euro stocks and the Euro currency to see if the ECB has made a mistake or not. So far, nothing much is happening.

randy said...

Regarding Piketty:

"but can household net worth increase by four percent annually in the long run, while the economy grows are two-three percent annually?"

That does seem to be the central question. I'm not an economist, but maybe not being smart enough to fabricate complex theoretical arguments helps see the obvious more clearly. It seems obvious that r > g cannot persist indefinitely, and r will eventually fall to that which is supported by g.

Piketty's arguments rely on long-term projections based on recent trends. Sold a lot of books I guess though.