US Household Wealth Fell by $1.5 Trillion during the Second Quarter

If you felt poorer over the last few months, you are not alone. Apparently, people lost about $5,000 per person during the second quarter. This is probably a much more important measure of how well off we are than GDP. Wealth is the present value of all future income. GDP is just the income at some point in time. Of course, at the same time that are wealth is declining our government debt is soaring.

U.S. household wealth fell by $1.5 trillion in the second quarter, according to Federal Reserve data on Friday that showed the strain a slow-paced recovery and high unemployment are putting on Americans.

Household net worth fell to $53.5 trillion, well below the $64.2 trillion it had reached at the end of 2007 when the recession officially began, according to the central bank's quarterly flow of funds report.

Declines in the value of financial assets -- especially in stocks and mutual funds -- accounted for much of the decline in second-quarter net worth. Stocks alone were down $1.9 trillion to $14.9 trillion, more than offsetting small gains in other areas like state and local government retirement funds.

Consumers pared debt at a seasonally adjusted annual rate of 2.3 percent, the ninth consecutive quarter in which they did so. Home mortgage debt fell at an annual rate of 2-1/4 percent after a 4-1/4 percent drop in the first three months this year.

During the financial crisis that wracked the country from 2007 to 2009, trillions of dollars in housing and financial market wealth was wiped out and heavy household and financial sector indebtedness was exposed. . . .

So far this year US Household wealth has fallen by about $100 billion.

The decline in wealth wiped out the first quarter’s $1.4 trillion gain, leaving households 19 percent short of the $65.9 trillion peak in the second quarter of 2007, before the recession began. Net worth bottomed at $48.3 trillion in the first quarter of 2009, when the economy contracted at a 4.9 percent annual pace. . . . .

Confidence among U.S. consumers unexpectedly fell in September to a one-year low, according to a separate report today.

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment dropped to 66.6 following a reading of 68.9 in August, the group said. Economists forecast the measure would rise to 70, according to the median estimate in a Bloomberg News survey. . . . .

The Business Insider notes that the drop since the beginning of the recession has been $12.3 trillion:

This is the Households and Nonprofit net worth as a percent of GDP.

This includes real estate and financial assets (stocks, bonds, pension reserves, deposits, etc) net of liabilities (mostly mortgages). Note that this does NOT include public debt obligations.

Note that this ratio was relatively stable for almost 50 years, and then we saw the stock market and housing bubbles. . . .