Higher Household Net Worth Should Support Economy
With the consumer being the engine of the slow but steady economic expansion, some new data from the Federal Reserve Board suggests that engine can continue motoring along.
Household balance sheets are benefitting from increasing asset values. Total assets for households increased by $1.2 trillion to $103.8 trillion in the second quarter of 2016, according to the Flow of Funds report released on Friday. Financial assets ($72.3 trillion) and nonfinancial assets ($31.4 trillion) both rose during the quarter.
On the liabilities side of household balance sheets, total household liabilities rose by $166.3 billion to $14.7 trillion. Loans, including mortgages and consumer credit, account for more than 96 percent of household liabilities. So Americans are showing their increasing willingness to use credit, which may be a sign of confidence.
The net of assets and liabilities – net worth – rose to $89.1 trillion in the second quarter, a record high. That is an increase of $1.1 trillion from the prior quarter.
Strong household balance sheets and a record high net worth are both positives for the consumer sector and economy overall. Combined with continued gains in jobs and income, these data suggest continued gains in consumer spending are likely.
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Robert Hughes
Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.
