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Economy in Brief

4Q Debt Fueled By Government Budget Deficit, 2005 By the Consumer
by Tom Moeller March 9, 2006

Growth in total credit market debt outstanding surged 11.4% (AR) last quarter. Faster growth rates often occur during 4Q but that was the quickest since 2002.

The acceleration from 3Q was due to a jump in Federal Government borrowing at a 10.1% rate (7.0% y/y) versus 6.6% in 3Q.

Growth in household sector borrowing continued strong at a 13.2% rate. That was down from the heated pace of the prior quarter but it capped off the fastest yearly rate of household sector borrowing on record by edging out the 11.5% rate of growth during 2003.

Home mortgage obligations grew at a 14.6% rate (14.1% y/y) last quarter capping the fourth consecutive year of double digit growth. Consumer credit growth slowed substantially to a 4.7% rate from 8.5% during 3Q and the 2.9% yearly rate of growth was the slowest since 1992, likely reflecting mortgage refinancings.

Household sector asset values rose at a 9.8% annual rate (8.5% y/y) during 4Q powered by a 14.0% (14.9% y/y) rise in the value of real estate holdings. Financial asset values rose 8.0% (5.6% y/y) due to an 11.2% (12.9% y/y) rise in the value of mutual fund shares but the value of corporate equities held directly fell 4.4% (-5.0% y/y).

The net worth of the US household sector in 4Q improved 2.3% (8.0% y/y) to a record $52.107 trillion. The gain, however, did not lift net worth as a percentage of income which fell slightly q/q to a still high 5.635 times income. During 2004 that ratio was 5.403 times.

Flow of Funds  % of Total 4Q 05 
(AR)
3Q 05
  (AR)
Y/Y 2005 2004 2003
Total Credit Market Debt Outstanding 11.4% 8.1% 8.8% 8.8% 8.4% 9.2%
    Federal Government 12% 10.1% 6.6% 7.0% 7.0% 9.0% 10.9%
    Households 28% 13.2% 14.3% 11.7% 11.7% 11.2% 11.5%
    Nonfinancial Corporate Business 14% 7.0% 4.4% 5.7% 5.7% 3.6% 2.2%
  Financial Sectors 32% 11.9% 3.4% 7.5% 7.5% 7.6% 10.1%
Net Worth: Households & Nonprofit Organizations (Trillions) -- $52.107 $50.957 -- $52.107 $48.250 $44.127
  Tangible Assets -- $25.558 $24.816 13.3% $25.558 $22.556 $20.040
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