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Fed: Stagnant Net Worth for Typical US Family

Posted By Barry Ritholtz On February 24, 2006 @ 9:57 am In Consumer Spending,Data Analysis,Economy,Federal Reserve,Inflation,Psychology | Comments Disabled

Every 3 years, the Federal Reserve undertakes a massive survey of nearly 5,000 US families. The interview process is comprehensive, covering all manners of financial information — and its intensive, taking between 80 minutes and 2 hours.

Its the Federal Reserve’s Report on U.S. Family Finances [1], and it quantifies what most people already know: The average family is not making much economic progress:      

"After growing rapidly during the boom of the 1990s, the net worth of the typical American family rose only 1.5% after inflation between 2001 and 2004, the Federal Reserve said in an update of a survey it does once every three years.

The Fed said the net worth of the median American family — the one smack in the statistical middle — was $93,100 in 2004. Net worth, the difference between a family’s assets and liabilities, rose a robust 10.3% between 1998 and 2001 and 17.4% in the three-year interval before that.

A booming housing market boosted the typical American family’s wealth between 2001 and 2004, but stagnant stock prices and rising debt offset many of those gains."

The Fed helps explain what many politicans have been unable to grasp: the disconnect [2] between rosy economic headline data and real life experiences for most families.

The report also gives lie to much of the foolish spin we have heard from some politicians and from the economic charlatans — those people who know better (or at least should know better), but knowingly deceive the public in pursuit of their own political or economic agenda.

A few items pop out from the report:

•  Rising debt has offset the boom in housing;
•  Inflation continues to eat into family cash flow;
•  Income remains stagnant;
•  Savings has slipped to zero; 

click for larger graphic

Wsj_consum_20060223191756 [3]

courtesy of WSJ [4]
>    

And, its no surprise that the gap between economic strata [5] has widened. This is part of the ongoing squeeze on the middle class:

"The report, the most comprehensive survey of household wealth, also found a widening of the gap between households at the top and the bottom of the economic ladder. "While the typical American household basically ran in place, less affluent households actually lost ground," said Stephen Brobeck, executive director of the Consumer Federation of America.

The net worth of the typical family in the richest 10% rose to $831,600, a 6.5% increase from 2001, adjusted for inflation. In contrast, the net worth of the typical family in the bottom 25% fell 1.5% to $13,300.

Meanwhile, the typical family took on more debt. After declining for years, mortgage and other debt as a percentage of total family assets rose to 15% in 2004 from 12.1%, the Fed said. "The largest part of that increase was attributable to debt secured by real estate," the report said. "As debt rose over the period, families devoted more of their incomes to servicing their debts, despite a general decline in interest rates."

All of the above has been very visible in the economic data, if you ignore the headlines and dig into thge underlying data: Job creation, income, inflation, debt, savings rate, foreclosure and bankruptcy. 

Which ever political group figures this is the primary basis for the disconnect between the so called official data and the self reported economic concerns — and responds to it — stands to do well in the next election . . .   

>

Source:
Typical U.S. Family’s Net Worth Edged Up Only 1.5% in ’01-’04 [6]
CHRISTOPHER CONKEY
WSJ, February 24, 2006; Page A4
http://online.wsj.com/article/SB114070076294181273.html

Recent Changes in U.S. Family Finances:
Evidence from the 2001 and 2004 Survey of Consumer Finances
[1]
Brian K. Bucks, Arthur B. Kennickell, and Kevin B. Moore
Federal Reserve Board, Division of Research and Statistics
February 2006
http://federalreserve.gov/pubs/bulletin/2006/financesurvey.pdf


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2006/02/fed-stagnant-net-worth-for-typical-us-family/

URLs in this post:

[1] U.S. Family Finances: http://federalreserve.gov/pubs/bulletin/2006/financesurvey.pdf

[2] disconnect: http://bigpicture.typepad.com/comments/2005/09/recovery_bypass.html

[3] Image: http://bigpicture.typepad.com/.shared/image.html?/photos/uncategorized/wsj_consum_20060223191756.gif

[4] WSJ: http://online.wsj.com/article/SB114070076294181273.html#GRAPHIC

[5] gap between economic strata: http://bigpicture.typepad.com/comments/2005/09/read_it_here_fi.html

[6] Typical U.S. Family’s Net Worth Edged Up Only 1.5% in ’01-’04: http://online.wsj.com/article/SB114070076294181273.html

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