Permanent Value

Week In Review 3/10/14

Bruce Doole
March 10th, 2014

American Household Wealth 

The boom in the stock market and the recovery in house prices led to a nearly $10 trillion increase last year in the net worth of American households, according to data released Thursday.

The net worth of American households grew last year by $9.8 trillion, or 14%, to $80.66 trillion, according to the Federal Reserve. That includes a nearly $3 trillion jump in the fourth quarter alone.

Most of the gains in net worth, $5.6 trillion, came through the stock market, as the S&P 500 climbed nearly 30%, and $2.3 trillion came in the value of real estate as home prices rose. U.S. home prices grew over 13% last year, according to the Case-Shiller 20-city composite index.

Those gains aren’t, of course, shared equally by Americans. A recent study from Ohio State said that the mean net worth of American households in mid-2013 was still 14% below the prerecession peak in 2006.

By the Fed’s numbers, and then including an inflation adjustment, American wealth is up 4% from 2006 levels. The Ohio State study points out the Fed includes data on nonprofit organizations and foreigner accounts outside the U.S. and doesn’t account for growth in the population.

A separate Fed study, from 2010 , showed that only 15% of families directly own stocks, though about half have some sort of retirement account that often holds equity.

The Fed report released Thursday, called the “financial accounts of the United States,” contains a dizzying array of data. Total debt outside the financial sector rose 5.4% in the fourth quarter and grew 4.3% for 2013.

Household debt grew just 0.4% in the fourth quarter, as a 1% drop in mortgage debt offset a 5.4% boom in consumer credit, mostly car and student loans. Mortgage debt has only grown in two quarters since the second quarter of 2008, due to foreclosures, short sales and tougher lending standards.

James McAndrews, director of research at the New York Fed, said in a speech Wednesday that rising household debt is generally positive for the economy. “While in recent years we have certainly seen that household debt can carry serious negative consequences, overall an increasing level of borrowing indicates that the economy is returning to normal patterns,” he said.

Businesses continued to take advantage of low interest rates and easy terms to pile on debt. In the fourth quarter, nonfinancial debt grew 7.1%.

Their cash piles edged up to $1.98 trillion from $1.91 trillion in the third quarter and just $1.64 trillion in 2009.

State and local government debt shrank 4.9%, while federal government debt surged 11.6% in the fourth quarter.

As a percentage of GDP, total debt edged up to 246% from 245%. It’s been north of 240% since the first quarter of 2009 and was just 121% in 1952.

This Week’s Economic Data

  • Personal income in January rose 0.3% and consumer spending increased by 0.4% (month over month) primarily due to positive bias from the services sector.
  • Federal Reserve Beige Book indicated economic conditions continued to expand from January to early February. Eight of the 12 districts reported improved levels of activity, although activity was characterized as modest to moderate.
  • Jobless claims decreased substantially by 26,000 to total 323,000 in the week ended Mar. 1, below pre-report forecasts.
  • Unemployment rate nudged up to 6.7% in February from 6.6% the month before. The consensus estimate was 6.6%.
  • International trade gap came in near expectations at $39.1 billion. Exports rose $1.2 billion, offset by a slightly higher rise in imports of $1.3 billion.


Source: Market Watch/ Ivy Funds