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Economy in Brief

U.S. Flow of Funds Indicates Expansion In Household Net-Worth To Highest In A Year
by Tom Moeller December 10, 2009

The financial health of U.S. households continued to improve last quarter, as indicated by the Federal Reserve's latest flow-of-funds figures. Household net worth increased $2.7 trillion to $53.4 trillion after a downwardly revised $2.3 trillion 2Q increase. Financial asset holdings improved by $2.4 trillion as the stock market moved higher after a $1.9 trillion 2Q rise. Lower interest rates raised the value of Treasury security holdings  by $168 billion and tangible asset values rose by $294 billion following the $391 billion 2Q rise. These gains were helped, finally, by an improved value of real estate holdings. Despite the gains, however, the value of households' real estate holdings remained 27.9% below the late-2006 peak.

Household financial positions also improved due to the reduction of liabilities, though that was small when compared to the rise in assets. Total liabilities fell $12.0 billion. While the decline was the fifth in the last six quarters, it paled versus recent $30-to-$300 quarterly reductions. Mortgage debt reduction was the largest, down for the sixth straight quarter, but consumer credit started to grow again along with bank loans.

The Federal Government has shared in none of the balance sheet improvement. The government's debt outstanding rose by nearly one-third during last quarter versus 3Q '08 to $7.5 trillion as spending rose and tax revenues sagged. The Federal Government's debt outstanding rose to 52.9% of GDP. Elsewhere, there's been a strong aversion to credit market liabilities with y/y declines posted by the household and the noncorporate business sectors. Deleveraging in the financial sector also has been impressive. The 5.2% y/y decline in liabilities dropped the level to its lowest in a year. 

End of Year
Flow of Funds (Y/Y % Chg.) % of Total Outstanding 3Q '09 2Q '09 End of Year
2008 2007 2006
Total Credit Market Debt Outstanding -- 1.1 2.9 5.0 10.4 9.8
    Federal Government 13.6% 30.1 35.9 24.2 4.9 3.9
    Households 25.9%  -1.8 -1.2 0.3 6.7 10.0
    Nonfinancial Corporate Business 13.8% 1.8 2.8 5.1 13.2 8.4
    Nonfarm, Noncorporate Business 6.9% -5.3 -1.7 5.5 14.2 14.7
  Financial Sectors 31.3% -5.2 -1.0 5.5 13.4 9.9
 Trillions of $            
Net Worth: Households & Nonprofit Organizations -- $53.423 $50.757 $51,379 $64.507 $64.520
  Tangible Assets: Households -- $23.069 $22.775 $23.891 $28.036 $29.735
  Financial Assets: Households -- $44.415 $42.055 $41.706 $50.788 $48.192
  Total Liabilities: Households -- $14.061 $14.073 $14.218 $14.318 $13.408
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