On December 8, 2011, the Federal Reserve released its third quarter 2011 report, “Flow of Funds Accounts in the United States”. A virtual cornucopia of data, the report is 127 pages of detailed tables of assets, liabilities and changes in the U.S. If you are an economic data nerd, it is almost all one could want.
Unfortunately, the data shows a continuing restructuring of American household finances that helps to explain the weak economic performance of the consumer segment. Here are some details:
1. American’s have less home mortgage debt. The peak of home mortgage debt was the end of the 2008’s first quarter (See Table D.3 in the Federal Reserve’s report.) Mortgage debt has declined almost every quarter since then. (2009’s first quarter was basically breakeven, but showed a very small increase). U.S. mortgage debt is now smaller than anytime sine the end of 2006. Basically, the past practices of (i) refinancing one’s mortgage to support other spending, and/or (ii) widespread regular upgrading of one’s residence is over.
2. Household real estate values continue to decrease, or at least certainly have not increased. Compared to the end of 2006, aggregate household real estate values are 27% lower. (See Table B.100 in the Federal Reserve’s report.) The decline in average individual home values is greater, since the aggregate values do not adjust for a larger overall population and housing stock.
3. Financial assets (bank accounts and investments) continue to decline. The peak value occurred in 2007. Compared to then, U.S. household financial assets are more than 7% lower. In 2011’s third quarter, household financial assets declined by more than 5%.
4. One would initially think that the repayment of household mortgages would cause an increase in household net worth (the fair market value of assets less liabilities), but this has not occurred. Household net worth declined for the last two quarters. Compared to what existed at the end of both 2006 and 2007, household net worth is now around 12% lower.
The Government Accountability Office (GAO) recently delivered a report regarding wealth held by the richest 1% of Americans. The report received enormous attention, and is the starting point for many of the statistics that are being almost constantly repeated by certain members of Congress and the press. What is almost never reported is that the GAO cut off their statistics at 2007, even though more recent data is available. Had the GAO used more recent data that includes the shrinkage of household wealth, the reported statistics would have been much different. In the same way that the so-called 1% owned larger amounts of wealth before, they face a disproportionate shrinkage of that wealth in the period that we have now experienced.
Government has not faced the same constraints and restrictions as households. Consolidated receipts for Federal, State & Local Governments continue to increase. (See Table F.106.C in the Federal Reserve’s report.) On a seasonally-adjusted, annualized basis, receipts are now 12.5% higher than in 2009. So, despite all the talk about government austerity, taxes are now significantly higher than just a short while earlier. Government spending has increased at a much larger rate than tax revenues, causing government liabilities to increase at an astronomical rate. (Note that the Federal Reserve’s tabulation of liabilities in this context excludes most government obligations for entitlement programs.) At the end of the third quarter 2011, government liabilities increased more than 60% over the amount that existed at the end of 2007.