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Economy in Brief

U.S. Financial Accounts Mixed as Households Borrowing More and Businesses Less
by Carol Stone, CBE  September 19, 2016

Total borrowing in the U.S. was $2,443 billion at a seasonally adjusted annual rate in Q2, down from $2,966 billion in Q1, according to the Financial Accounts of the U.S., released Friday by the Federal Reserve Board. The Q2 amount represented 13.3% of GDP, compared to 16.2% in Q1 and similar to the general 10-13% range that has prevailed since 2012. Notably, in the five years before the Great Recession, this ratio averaged almost 29% and peaked at 36.4% in 2007-Q3.

In Q2, the federal government borrowed $722 billion SAAR, down from Q1's $852 billion. Issuance of marketable Treasury securities was $629 billion in Q2 versus $719 billion the quarter before. Nonmarketable borrowing was $141 billion after $134 billion in Q1. Thus, the outsized debt-crisis volume of Q4-2015, $2,243 billion, is clearly seen as a special case.

Households borrowed $622 billion SAAR in Q2, up from $372 billion in Q1. Net new home mortgages came to $241 billion, compared to $192 billion in Q1. The Q2 amount was the largest since Q1-2008, but still substantially smaller than during the housing boom just ahead of the recession. Consumer credit expanded $230 billion in Q2, slightly larger than the $199 billion in Q1. Credit card debt rose $69 billion, up from $49 billion, and student loans rose $86 billion, down from $96 billion. Over the last five years, student loan borrowing has averaged right at $91 billion each quarter. Borrowing by non-profits, hedge funds and others assigned to the "household" sector was $151 billion SAAR in Q2, versus a net paydown of $11 billion in Q1. Household borrowing was 4.5% of disposable personal income in Q2, up from 2.8% in Q1 and similar to the last three years; in sharp contrast, from 2003 through 2006, this ratio was just over 12%.

Nonfinancial corporate business borrowing diminished markedly in Q2 to $244 billion SAAR from $902 billion in Q1. Corporate bond issuance was $293 billion SAAR, down from Q1's $530 billion. Depository institution loans increased only $27 billion in Q2 after $156 billion in Q1, while loans from other lenders were paid down at a $165 billion annual rate, after increasing $138 billion in Q1. Commercial paper issuance was $12 billion in Q2, following $34 billion in Q1.

The financial sector borrowing appeared to firm up, with $571 billion in Q2, after $586 in Q1, the two strongest quarters since mid-2008. These latest periods were, however, far less than in the run-up to the recession and the financial crisis that characterized that period.

Press reports of these Financial Accounts highlight household balance sheets and net worth, and describe that amount at end-Q2 as a "record." Indeed, household net worth did rise in Q2 from a record amount in Q1, but the increase was marginal, to $89.1 trillion (level, not seasonally adjusted) from $88.0 trillion at the end of Q1. Homeowners' equity was $12.7 trillion, up from $12.4 trillion. Holdings of corporate equities at end-Q2 were $14.5 trillion, up from $14.2 trillion, and mutual fund holds were $6.7 trillion, slightly more than Q1's $6.5 trillion.

Net wealth of the total economy moved ahead $1.2 trillion in Q2 to $81.1 trillion from $79.9 trillion at end-Q1 (also levels, not seasonally adjusted). The total market value of domestic corporations rose to $29.4 trillion from $28.8 trillion; it had fallen during Q1 from $28.9 trillion at end-2015. Net financial claims on the "rest of the world" decreased from $-5.7 trillion at end-Q1 to -$5.8 trillion in Q2. The remainder of the net wealth measure consists of nonfinancial assets held by households, noncorporate business and governments; these totaled $57.5 trillion at end-Q2, up $810 billion from end-Q1.

The Financial Accounts data are in Haver's FFUNDS database. Associated information is compiled in the Integrated Macroeconomic Accounts produced jointly with the Bureau of Economic Analysis (BEA); these are carried in Haver's USNA database.

Financial Accounts (SAAR, Bil.$) Q2'16 Q1'16 Q4'15 2015 2014 2013 2012
Total Borrowing* 2443 2966 3921 2076 2321 2040 1710
Federal Government 770 852 2245 725 736 857 1181
Households 623 380 522 389 415 231 255
Nonfinancial Corporate Business 244 902 268 472 485 397 305
Financial Sectors 571 586 220 166 320 255 -396
*Previously called "credit market borrowing" and includes debt securities plus loans. The total here includes noncorporate business, state and local government and foreign sectors, not shown separately.
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