Joe Sixpack’s Wealth Grew in 3Q2010

The Federal Reserve released their statement of financial account (Z.1 Flow of Funds) for 3Q2010 in the USA in both the private and public sectors.    It tallies money flows and borrowing, as well as estimating asset values.  The headlines from the release:

Debt of the domestic nonfinancial sectors is estimated to have expanded at a seasonally adjusted annual rate of 4¼ percent in the third quarter of 2010, ½ percentage point less than in the previous quarter.  Private debt changed little in the third quarter, while federal government debt continued to grow rapidly.

Household debt contracted at an annual rate of 1¾ percent in the third quarter, the tenth consecutive quarterly decline. Home mortgage debt fell at an annual rate of 2½ percent in the third quarter, about the same as in the previous quarter. Consumer credit was down 1½ percent, after a decline of 3¼ in the previous quarter.

Nonfinancial business debt rose 1¾ percent in the third quarter, after remaining about flat over the first half of this year. Corporate bonds outstanding posted another strong increase, more than offsetting declines in commercial mortgages and bank loans outstanding.

State and local government debt rose 5¼ percent at an annual rate in the third quarter, after a 1½ percent decline in the second quarter. Federal government debt increased at an annual rate of 16 percent in the third quarter, 6½ percentage points less than the average during the first half of the year.

At the end of the third quarter of 2010, the level of domestic nonfinancial debt outstanding was $35.9 trillion; household debt was $13.4 trillion, nonfinancial business debt was $11.0 trillion, and total government debt was $11.5 trillion.

Household net worth—the difference between the value of assets and liabilities—was an estimated $54.9 trillion at the end of the third quarter, up about $1.2 trillion from the end of the previous quarter.

The headlines concentrated on debt.  From this data, 3Q2010 is showing an expansion of credit for every sector but households.  This contraction has been underway since 2009.

But debt is only part of the picture for Joe Sixpack.  Joe’s net worth picked up slightly this quarter from a unusual combination of:

  • a declining overall debt
  • a decline in tangible assets (primarily real estate)
  • an increase in financial assets (primarily from deposits and stock market increases)

This is really the first growth of Joe’s net worth since 2005.  The table below from the 125 page document gives overall context to Joe Sixpack’s current financial health. (click on table to view detail).

It is too early to tell if Joe is on the way to recovery.  Housing prices appear to be continuing their decline after a respite.  This may be more than offset by equities market gains caused by QE2, the increase in savings, and the contraction of debt.

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