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Economy in Brief

U.S. Flow of Funds Indicate Further Shrinkage of Balance Sheets
by Tom Moeller June 12, 2009

Since the peak in 2Q 2007, the net worth of the U.S. household & nonprofit sectors' has fallen by $13.8 trillion, or by nearly one-quarter. The decline to its lowest level since 2004 was led by the rapid shrinkage in asset values, namely of stocks and real estate. Over just the last four quarters alone, the decline totaled $9.8 trillion. Over that period, the value of the household sector's financial assets fell by $7.9 trillion as the value of equity market shares fell by $3.3 trillion, or by 39.1% y/y, and mutual fund share values also fell by $1.3 trillion, or 28.4%. In addition, pension fund reserves were hit by $2.78 trillion during the year or by 21.2%. Tangible asset values suffered somewhat less than financial values but they still were down sharply. Over the last year, the value of tangibles overall dropped $2.2 trillion (-8.3%) as the reduction in real estate values totaled $2.3 trillion or 10.3%.

Accompanying the decline in the household sector's asset values was a reining in of liabilities. Total credit market liabilities of the household sector rose just 4.4% during the last four quarters, the weakest advance since 1954 (no typo). And all sectors pulled back their borrowing -- except the Federal government whose liabilities grew a record 28.3%. Non-government domestic liabilities retreated as the recession generated further deleveraging. These liabilities fell for the second quarter and were up a record slow 1.2% year-to-year. Credit market debt owed by the household sector dropped sharply for the second straight quarter (-0.6% y/y). After two quarters of breathtaking decline, mortgage borrowing inched up 1.6% (-1.0% y/y). Consumers also were of a mind to reduce credit liabilities which they did by a record $75.3 billion (-0.4% y/y). With the third decline in the last four quarters, the value of bank loans was up just 1.9% y/y, the least since 2005.

Credit market debt owed by the financial sector contracted and reversed roughly one-third of a 4Q rise. Year-to-year growth of 3.7% was down from a peak of 13.4% back in 2007. Liabilities of commercial banks rose 31.4% y/y but savings institutions liabilities fell for the fourth straight quarter (-25.3% y/y).

The liabilities of the foreign sector increased for the first quarter in the last three but year-to-year growth was a negative 9.0%.

Credit Quantity and Credit Quality: Bank Competition and Capital Accumulation from the Federal Reserve Bank of New York can be found here.

Flow of Funds (Y/Y % Chg.) % of Total 1Q '09 4Q '08 2008 2007 2006
Total Credit Market Debt Outstanding -- 4.4 5.2 5.2 10.1 9.9
    Federal Government 11% 28.3 24.2 24.2 4.9 3.9
    Households 28% -0.6 0.4 0.4 6.6 10.1
    Nonfinancial Corporate Business 13% 4.3 5.3 5.3 14.1 8.4
    Nonfarm, NonCorporate Business 7% 1.3 4.7 4.7 12.8 14.7
  Financial Sectors 32% 3.7 5.5 5.5 13.4 10.0
             
Net Worth: Households & Nonprofit Organizations (Trillions) -- $50.376 $51.706 $51.706 $62.191 $62.206
  Tangible Assets: Households -- $24.221 $24.782 $24.782 $27.102 $28.288
   Financial Assets: Households -- $40.295 $41.179 $41.179 $49.831 $47.356
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