Doug Short | Sep 26, 2013 01:50AM ET
With today's release of the Fed Flow of Funds for Q2 2013, I have updated this commentary to incorporate the latest data.
Let's take a long-term view of household net worth from the latest Flow of Funds report. A quick glance at the complete data series shows a distinct bubble in net worth that peaked in Q4 2007 with a trough in Q1 2009, the same quarter the stock market bottomed. The latest Fed balance sheet shows a total net worth that is 34.6% above the 2009 trough at a new all-time high 8.4% above the 2007 peak. The nominal Q4 net worth is up 1.8% from the previous quarter and up 11.5% year over year.
But there is another more serious problem, one that has to do with the data itself rather than the method of display. Over the same time frame that net worth grew seven-thousand-plus percent, the value of the 1950 dollar shrank to about nine cents. The Federal Reserve gives us the nominal value of total net worth, which is significantly skewed by money illusion . Here is my own log scale chart adjusted for inflation using the Consumer Price Index.
We'll take another look at the nominal and real numbers after the release of the Q3 2013 Flow of Funds data in December.
Note: I've referred to this data series as "household" net worth. But, as I show in the chart titles, it also includes the net worth of nonprofit organizations. The ratio of two isn't clearly defined in the Fed data, and it obviously varies by asset and liability component. I've seen estimates that the nonprofit component is around six percent of the total net worth.
One easy (and rather illuminating) point of comparison in the Flow of Funds data is the relative share of real estate at market value (B.100 lines 3, 4, and 5). In the latest report, nonprofit organizations account for 6.0% of combined household and nonprofit real estate (down from 6.1% last quarter). That percentage in the quarterly data has ranged from a high of 9.2% in Q4 1974 to a low of 4.5% in Q3 1996.
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