Friday, December 08, 2006

Merry Christmas: households still getting wealthier in aggregate

I take the Fed's quarterly Flow of Funds report to be one of the best measures of household economic health. It indicates real estate vs. financial assets, as well as various forms of debt. Household net worth has increased from $40 trillion to $54 trillion in the last 5 years, which averages $5,000 per year per household. Of course, the richer households' net worth would intuitively be rising faster than the poorer ones. But today's WSJ talks about the rising tide lifting most all of the boats:
The competitive labor market is boosting wages, and the stock market has produced big gains for many investors so far this year. After declining slightly in the second quarter, the value of household financial assets rose nearly 2% in the third quarter to $40.5 trillion, the Fed said. That combination helped lift household net worth, which was flat in the second quarter, by 1.5% in the third quarter to $54.06 trillion.

It looks like households are still in pretty good shape," said Robert Mellman, senior economist at J.P. Morgan Chase & Co. "The fundamentals for consumer spending are really quite good."

That may be true, but they also appear to be turning cautious. In a separate report yesterday, the Fed said consumer borrowing decreased by 0.6% in October, the largest monthly drop in 14 years. "In the grand scheme of things, households are stepping back a bit and being more conservative," said Daniel Jester, an economist at Moody's

I hope that you can find solid reasons to celebrate this holiday season. If you need a little help, here is a nice piece from Greg Mankiw's blog, and that is just about temporal blessings. Add in some love and respect--of self and others, from self and others--and life is beautiful. I wish all our generation peace and goodwill towards one another.

UPDATE: Tyler Cowen notes the rise in buying power for non-management workers on his blog today.

UPDATE: Greg Mankiw, too. I don't know what to shudder harder at: 2 of my favorite economists linking to the NYTimes, or that I might get busted for reading Tyler before Greg.

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