American Household Wealth Surges to New Record--Fed

Reuters ^ | 03/10/2005

[Sam the Sham]

In high real estate value areas, like the New York metro it has been known to happen. For instance in 1987 the New York metro housing market tumbled and people were "upside down" (the mortgage is more than the resale value) until 1994.

[Southack]

"The professional pessimists constantly rant about the 'death of the middle class', outsourcing, deficits, illegal immigration. At the same time the American family has been socking it away. Dang, if this is the economic catastrophy we've been hearing about, who need's prosperity?"

$161,767.00 in net wealth for every man, woman, and child in the U.S. is beyond "prosperity" so far as to warrant the term "rich."

There's never been national wealth at this level in any country in all of world history.

[expat_panama]

There's never been national wealth at this level in any country in all of world history.

That's such an important statement I feel like putting it to music.  Down here in the jungle a guy can do a good job of raising a family for just a dollar an hour.   I'm talking two bedroom house, electricity, phone, food, healthcare, schooling, yadda, and yadda. 

But stateside the dems decry the agony of the 'poor' that have a car, microwave, a house, color tv, phone, and they don't even have to sweep up a dirt floor like people here do.   The US victim class has gone off the deep end with the complaining bit--  there's absolutely nothing that can ever happen that they could possibly accept as being "good".

[quantfive]

I like your positive attitude! I am grateful to God that we have all the basics and a nice home, I just resent articles that claim how rich our nation is. Seems my parents and grandparents generation owned their own homes before 50 and only needed on parent to bring home the bacon.

[quantfive]

"In truth, at least in my experience, "Class" is more a matter of self image and attitude than of income measured in dollars."

Good point.

[quantfive]

Nope, not above average :^)

[Southack]

If your wealth is below average while you live in a high-cost area, then you are probably dooming yourself to a lifetime of financial anxiety...not good for your stress level.

But hey, it's a free country. Everyone gets to make their own decisions in such matters.

[BenLurkin]

Yup. They said the exact same line in 1992 and 2004.

Let's remember to remind the young new voters in 2008 of the left's dissembling and perfidy in those elections . . .

. . . and let's hope that the older voters develop LONGER memories this time.

[DannyTN]

$48.53 trillion divided by 480 million US citizens = $121,325 per person.

[remember]

It's weird how when ever you ask anyone about business, they always say 'I'm doing great but everyone else is broke" --it's because everyone really is doing great but they're getting their info from Dan Rather and Willie Green.

The professional pessimists constantly rant about the 'death of the middle class', outsourcing, deficits, illegal immigration. At the same time the American family has been socking it away. Dang, if this is the economic catastrophy we've been hearing about, who need's prosperity?

Since this report says nothing about the distribution of wealth, it likewise says nothing about the health of the middle class. In addition, I notice that the media has still not learned how to correct numbers for inflation. I took a closer look at the report and used it to generate the following table:

            TOTAL NET WORTH OF HOUSEHOLDS AND NONPROFIT ORGANIZATIONS
                              (billions of dollars)

            Total                             Major                            Major
              Net constant   % of    Euros Currency                   $ per Currency
Year Qtr    Worth   2000 $    GDP    (bil)   2000 $    CPI      GDP    Euro    Index
---- ---  -------  -------  -----  -------  -------  -----  -------  ------  -------
1993      24188.9  28825.8  363.3  21721.4  21504.1  144.5   6657.4  1.1136  92.0083
1994      24841.8  28864.8  351.3  20067.7  20898.2  148.2   7072.2  1.2379  87.0656
1995      27709.9  31310.0  374.6  21988.5  23145.5  152.4   7397.7  1.2602  86.4478
1996      30297.5  33251.9  387.6  25047.5  26356.4  156.9   7816.9  1.2096  90.0327
1997      34039.9  36521.3  409.9  31318.3  32392.0  160.5   8304.3  1.0869  98.4853
1998      37523.7  39641.6  429.0  32373.1  34250.2  163.0   8747.0  1.1591  94.4668
1999      42444.8  43871.5  458.0  41896.0  39393.6  166.6   9268.4  1.0131  96.0556
2000      42073.9  42073.9  428.6  44874.0  42073.9  172.2   9817.0  0.9376 103.4955
2001      41258.3  40116.8  407.4  46714.6  44329.6  177.1  10128.0  0.8832 111.1998
2002      39617.7  37922.0  377.8  37297.8  37806.4  179.9  10487.0  1.0622  98.7638
2003  Q1  39623.2  37284.8  368.8  36478.7  37007.3  183.0  10744.6  1.0862  96.6628
      Q2  41400.1  38815.4  380.4  36427.7  37173.1  183.7  10884.0  1.1365  92.9284
      Q3  42248.5  39417.7  380.0  36066.7  36248.1  184.6  11116.7  1.1714  88.7965
      Q4  44582.6  41587.9  395.6  35276.6  36344.5  184.6  11270.9  1.2638  84.3714
2004  Q1  45352.5  41927.5  395.3  37828.4  38307.4  186.3  11472.6  1.1989  87.4184
      Q2  46018.1  41942.4  394.8  37516.8  38418.9  188.9  11657.5  1.2266  86.4048
      Q3  46589.7  42314.1  394.3  37250.9  37928.0  189.6  11814.9  1.2507  84.2542
      Q4  48525.4  43810.2  405.5  36977.4  38004.7  190.7  11967.0  1.3123  81.0568

Note: Euro exchange rate before 1999 is Foreign Exchange Rate: Euro Community
Source: Flow of Funds Accounts of the United States, Q4 2004, Tables B.100, B.100.e,
        online at http://www.federalreserve.gov/releases/Z1/Current/z1.pdf;
        2004 Economic Report of the President, Tables B-1 and B-60;
        http://research.stlouisfed.org/fred2/series/EXUSEC/downloaddata/EXUSEC.txt;
        http://research.stlouisfed.org/fred2/series/EXUSEU/downloaddata/EXUSEU.txt;
        http://research.stlouisfed.org/fred2/series/TWEXMMTH/downloaddata/TWEXMMTH.txt

As can be seen, after adjusting for inflation, total net worth is slightly below the high that it reached at the end of 1999. As a percentage of GDP, it is 88.5 percent of its 1999 high. Most interesting, perhaps, is the value of total net worth in terms of foreign currencies. Measured in Euros, total net worth is about 79 percent of the high that it reached at the end of 2001. Adjusted using the Trade Weighted Exchange Index for Major Currencies, net worth is about 86 percent of its 2001 high. Hence, we should look at the numbers a little more closely before we spend too much on ice cream and party hats.

[jpsb]

Thanks,

[quantfive]

"total net worth is about 79 percent of the high that it reached at the end of 2001. Adjusted using the Trade Weighted Exchange Index for Major Currencies, net worth is about 86 percent of its 2001 high. Hence, we should look at the numbers a little more closely before we spend too much on ice cream and party hats."

Correct. Nice chart you put together. The driving inflation in energy, real estate and prescription drugs and their trickle down effect being the biggest driving factors, no doubt.

[Southack]

Oh no, U.S. wealth is down when measured in ... drum roll ... EURO's!

BWAA Ha ha!

[expat_panama]

Your points are valid.   I'll summarize what I understand from your post and please help me out if I'm missing something.  You're saying that the news about family wealth can be seen as bad because:

- (1) family wealth/cpi as of the end of last year not is not yet quite equal to that of the last peak;

- (2) the real wealth that families have now is a smaller percentage of gdp than it was back in 1999 when the economy was smaller;

- (3) there's always the hope that the possibility that none of this wealth has gone to the middle class and may have gone instead to someone else's quintile;

- (4) back in 2000 our wealth could have been traded for more European goods than our current wealth can today;

These points can be good for arguing about politics or for making the future look grim.  OTOH, I wouldn't recommend making any business or investing decisions based on that slant-- unless of course your goal is to qualify for increased government assistance next year.  ;-)

[remember]

Your points are valid. I'll summarize what I understand from your post and please help me out if I'm missing something. You're saying that the news about family wealth can be seen as bad because:

I'm not saying that the news is bad. Household net worth went up last quarter, just like it does in nearly every non-recession quarter, just as does prices, revenues, and GDP. The fact that it hit a new record (unadjusted for inflation) is about as big a news item as the fact that the GDP hit a new record.

- (1) family wealth/cpi as of the end of last year not is not yet quite equal to that of the last peak;

The key point is that the numbers should be at least corrected for inflation. It appears that nobody in the so-called liberal media has thought to do this. As is often the case, they are just regurgitating the numbers that they are fed. The Flow of Funds report doesn't contain the inflation-adjusted figures (perhaps it should) so the media doesn't report them.

- (2) the real wealth that families have now is a smaller percentage of gdp than it was back in 1999 when the economy was smaller;

Not having done a long-term study of household net worth, I don't know if it has tracked GDP over the long-term. Many existing assets may track inflation (real estate being a current exception). However, wages tend to track GDP over the long run and those wages add to new wealth. Hence, I suspect that household net worth tends to rise faster than inflation but possibly slower than GDP.

- (3) there's always [the hope that] the possibility that none of this wealth has gone to the middle class and may have gone instead to someone else's quintile;

You should really learn how to delete your Freudian slips rather than just crossing them out! ;) In any case, I was just answering your statement that "The professional pessimists constantly rant about the 'death of the middle class'". The fact is, this report says absolutely nothing about middle class. It gives the totals for the entire population of households (and nonprofit organizations), irrespective of class.

- (4) back in 2000 our wealth could have been traded for more European goods than our current wealth can today;

This is another tough issue as it's difficult to know the exact repercussions of the dropping dollar. To somebody who was going to retire in Europe (or any other nation against whose currency the dollar has dropped), it would be a major concern. To people who buy imports, it's a varying concern. Some imports, such as oil, have been seriously affected while others have not. In any case, it's not possible to know exactly what the final effects will be.

These points can be good for arguing about politics or for making the future look grim. OTOH, I wouldn't recommend making any business or investing decisions based on that slant-- unless of course your goal is to qualify for increased government assistance next year. ;-)

Likewise, I would not recommend making any business or investing decisions based on the fact that household net worth, unadjusted for inflation, has gone up as it does in nearly every non-recession year. However, I complement you for posting a graph of net worth containing inflation-adjusted numbers. As I'm sure you agree, these numbers are much more meaningful than the unadjusted numbers. In any case, following is a graph derived from the table in my prior post:

[expat_panama]

We seem to be on the same page with this one.  We both agree that the news is not bad.  We also agree that while this is not all there is to the economy,  "household net worth, unadjusted for inflation, has gone up as it does in nearly every non-recession year."   When I said this was 'good news' I was not being factual but rather interpreting the situation in terms of my own personal value system (although that doesn't make me a bad guy).   

FWIW, during the beginning of an expansion it's good to buy stocks, and at the beginning of a recession it's best to sell --although it also depends on just which ones you're selling and buying but I digress.   Bottom line: thanks for the heads up on how inflation and currency indexes affect family wealth-- I agree, your points are valid.

Now where did I put my party hat... 

[expat_panama]

Dang! While I was arguing with you guys my icecream melted.

[remember]

FWIW, during the beginning of an expansion it's good to buy stocks, and at the beginning of a recession it's best to sell --although it also depends on just which ones you're selling and buying but I digress. Bottom line: thanks for the heads up on how inflation and currency indexes affect family wealth-- I agree, your points are valid.

Now where did I put my party hat...

Thanks. I agree that we seem to be basically on the same page. Anyhow, I hope you find your party hat and get some more ice cream. Having a party is perfectly fine. I only suggested that we not spend too much on ice cream and party hats, especially that increasingly expensive FOREIGN ice cream and party hats!

[expat_panama]

The Panamanian icecream that we buy here is about a fourth the price I pay for Bluebell icecream in Texas.

Let me know the next time you're down this way-- the icecream is especially good with the fresh locally grown coffee.

[expatguy]

Hey Im also in the jungle!

An American Expat in Southeast Asia