Thursday, March 9, 2017

Richer than ever

Today the Fed released its Q4/16 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 have been struggling through the weakest recovery ever, but at the same time we are better off than ever before, and by a lot.

As of December 31, 2016, the net worth of U.S. households (including that of Non-Profit Organizations, which exist for the benefit of all) reached a staggering $92.8 trillion. That's up $5.5 trillion in just the past year, for an impressive gain of 12%. Of note, household liabilities have increased by only $500 billion since their 2008 peak, for a gain of just 3.4%; the value of real estate holdings is up by about $1.5 trillion (about 6% above that of the "bubble" high of 2006); and financial asset holdings have soared buy $22.3 trillion since pre-crash levels (over 40%), thanks to significant gains in savings deposits, bonds, and equities. The gains in wealth are not just due to a raging stock market, since the market cap of all traded U.S. equities has risen by only $7.7 trillion since their pre-2008 high, according to Bloomberg.

In real terms, household net worth has grown at a 3.5% annualized rate for the past 65 years, as seen in the chart above. That works out to almost a 10-fold gain in wealth, and that's impressive by any standard.

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 $286K, up from $62K in 1950. This measure of wealth has been rising, on average, about 2.3% 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 one third, from a high of 22.1% in early 2009 to 14.8% by the end of last year. Households have been prudently and impressively strengthening their balance sheets over the past seven years by saving and investing more and by reducing the use of debt financing.

Is this a great country or what?

6 comments: said...

Yes,if you are retired w a portfolio of diversified equity, & commercial real estate holdings w fully amortizing financing--life is good. Debt WAY down from 2008.

Making America Great Again

Anonymous said...

do you have median-data?

Today's phenomenal jobs numbers indicate, that the globalists' destruction of the middle class and the buildup of communist China seems to be slowed down, or maybe even coming to an end. Trump indeed seems to bring good paying manufacturing jobs, middle class jobs, back.
Lucky America for having a leader now who says what he means and does what he says - after the election like before the election.
Impressive to see, what a huge difference the president can make. One capable and curageous man. Wow.

Packard said...

Let me chorus in with endzeit14,

Median household net worth/income data is everything. Providing only raw overall wealth numbers or even averages tends to skew too far toward what occurred with the only the top 10% or even top 1% of households.

It is hard to get a clear view of what happended to all American households without the median numbers.

Scott Grannis said...

Median numbers are not available, unfortunately. But I would argue that it doesn't much matter. Our total wealth is a by-product of the work of entrepreneurs, capitalists, small business owners, inventors, speculators, investors and laborers. All of the capital that has been created to run our economy and employ our workers is available to everyone. All the roads, the infrastructure, the customs, the institutions are enjoyed by everyone. Bill Gates is extremely wealthy, but 99% of his wealth is in the form of ownership of companies that employ people, invent things, process information, etc. It's his wealth that has helped build the economy. His wealth is in the capital stock of our economy, and the capital we have accumulated in this economy is what drives our living standards. The wealth of the 1000 richest Americans is almost all held in the form of businesses, factories, and land. It's not sitting in a box under the bed. Thanks to the wealth and hard work and savings and investment of the richest among us, we are all wealthy and more prosperous than our ancestors could possibly have imagined.

Anonymous said...

There's a superb piece by Andy Lapthorne, from SocGen, who sheds some light on how that distribution of wealth is happening in the public equity markets. Quite a gap, with some sort of prevalent "winners take all" reality where some companies have much higher margins than rest of sector and historical highs in loss-making companies that are worth quite a lot too.

I strongly recommend some read, glad to share. @thetailchaser on Twitter.

Anonymous said...

"The wealth of the 1000 richest Americans is almost all held in the form of businesses, factories, and land. It's not sitting in a box under the bed."

Scott, there is a huge difference, if I havezero, 100.000 $ savings or 100.000.000 $.
The one with the 100.000.000 is accumulating at an exponential rate.
The one with 100.000 is spending on middle-class investments!
The one with zero savings is spending it on cheap things, like fast food, restaurants or holydays.

Therefore the distribution of wealth is EXTREMELY important.
There are many other socio-cultural aspects, why the globalists are doing all they can to destroy the middle classe and create a 90-10 society, but I leave it with the economic aspect.