U.S. Flow of Funds: Debt Growth Slowed, Household Net Worth Down

Credit market debt outstanding owed by all sectors of the economy grew 8.6% AR (8.9% y/y) during the fourth quarter of 2007. The gain was a marked slowdown from the strong 10.9% rise during 3Q.

Boosted by the growing budget deficit, the federal government's debt obligations grew 4.9% last year which was up from the 3.9% gain during 2006. Nevertheless, the y/y rise of 4.9% was about half the peak 10.9% rise during 2003.

Consumer credit debt growth slowed to a 5.7% quarterly rate of growth (6.8% y/y) from 7.0% during 3Q. For the year, the 6.8% rate of increase was nearly half the peak rate of 2003 and reflected the slowdown in consumer spending. Households' obligations on home mortgages grew just 5.0% (6.6% y/y) which again was half the gain four years earlier as home purchases tumbled. Conversely, credit card debt growth during the year sped up slightly to 5.5% from 3.9% during 2006. Bank loans nearly doubled during the year.

Credit market debt owed by the nonfinancial corporate business sector also sped up to a 11.1% y/y rate of growth which was the strongest in ten years. The non corporate business sector also generated a slight speedup in debt accumulation to a 12.9% rate.

Credit market debt owed by the financial sector accelerated as well to an 11.1% rate of growth which was the strongest gain since 2001. Liabilities at commercial banks grew 26.0% y/y, savings institutions by 34.6% and credit unions by nearly three quarters.

The net worth of the U.S. household sector last quarter deteriorated during 4Q to $57.2 trillion from the prior quarter's record level. The dollar level of household sector assets fell $307.6 billion pulled down by a $54.0 billion loss in tangible asset values (+2.8% y/y) and a $253.6 billion drop in financial values (+4.9% y/y). Liabilities grew $255.2 billion (6.8% y/y).

Assessing Employment Growth in 2007 from the Federal Reserve Bank of San Francisco can be found here.

Recent Trends in Economic Volatility: Conference Summary also from the Federal Reserve Bank of San Francisco is available here

China's balance on trade in goods declined substantially in February to $8.6 billion from $19.5 billion in January. Both exports and imports declined; the former by 20% and the latter by 13%. The unadjusted figures are shown in the first chart. Part of the declines in exports and imports may have resulted from the extreme weather conditions which disrupted transportation. In addition, the variable occurrence of the Chinese New Year always introduces anomalies in Chinese statistics at the beginning of the year.

Haver Analytics adjusts the data for seasonal factors and the occurrence of the Chinese New Year. These adjusted data are shown in the second chart. Even with seasonal adjustment, the decline in the balance of trade remains significant. The seasonally adjusted exports show a decline, the seasonally adjusted imports show a substantial rise.

While the total trade balance shows a decline of over 50% for both the seasonally adjusted and the non adjusted data for February, the balance of trade with the U. S. showed a smaller decline of about 20% for the seasonally adjusted and unadjusted. On a seasonally adjusted basis Chinese exports to the U.S. were still positive. The third chart compares the Chinese balance of trade with the U.S. on a seasonally adjusted and an unadjusted basis. Finally the fourth chart compares the total Chinese surplus on trade with the surplus on trade with the U. S.

Japan’s economy watcher’s index made a long awaited bounce in February. The future conditions index rebounded most sharply. The current conditions and current employment indices each made soft rebounds as well. The future index is now ‘only in the bottom 17^th percentile of its five year range instead of at the bottom. The overall economy watchers index is only up to the bottom 7.1% of its range from the bottom. Typically when the future index has been weak and makes a significant rebound that rebound is meaningful. The rise in the various economy watcher indices this month is encouraging.

Japan orders are showing signs of erratic rebound. Orders hit their cycle low early in 2007. Since then they have been rebounding irregularly. Foreign demand is showing the sharpest increase but the domestic/foreign order breakdowns are for total orders not core orders explaining why the two series are so volatile.

The table below shows that the core orders with the lesser volatility are now in a clear trend and are recovering strongly over the recent 3 months. The progression from two years ago forward shows steady improvement in order growth rates.