Posts filed under “Inflation”

Fed: Stagnant Net Worth for Typical US Family

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, 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 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

courtesy of WSJ
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And, its no surprise that the gap between economic strata 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 . . .   

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Source:
Typical U.S. Family’s Net Worth Edged Up Only 1.5% in ’01-’04
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

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

Category: Consumer Spending, Data Analysis, Economy, Federal Reserve, Inflation, Psychology

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Category: Federal Reserve, Fixed Income/Interest Rates, Inflation

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Category: Employment, Federal Reserve, Inflation, Investing, Markets, Psychology

Sourcing the Greenspan Chatter

This is the article that the Greenspan quote came from that popped the market today; I don’t know how accurate it is (holographic image?) but

Gold price riding high on fear of terrorism, says Greenspan
Leo Lewis, Tokyo
February 09, 2006
http://tinyurl.com/98gdp

Excerpt:

"ALAN Greenspan, who stepped
down last week as chairman of the US Federal Reserve after 18 1/2 years, has
blamed the threat of terrorism for the high gold price, in his first private
sector speech since being let off the leash of officialdom.

According to
members of his audience of international investors – watching a holographic
image in Tokyo as he spoke in New York – Greenspan said the high cost of gold
did not reflect inflation or the strength of commodities, but rather a fear
among investors of a major geopolitical conflict. There were people who believed
that a nuclear weapon could be detonated within five years, the former American
central bank supremo said.

The low probability of such an event occurring would not necessarily avert a
spike in the gold price, he added.

Greenspan went on to discuss a range of topics, including the problems
created by a lack of investment in refining capacity by the oil industry. He
said this failure by the oil majors meant that the era of cheap energy was
almost surely over.

The former Fed chairman is also said to have indulged in a moment of
self-criticism over the central bank’s failure to prevent the market bubble in
the late 1990s.

That may explain Gold’s $20 whackage yesterday, but what about all the rest of the metals and commodities?

Also, if you missed this, you MUST read it:

GREENSPAN SENDS MIXED SIGNALS IN FIRST DAY AT HOME
Former Fed Chief’s Inscrutable Statements Baffle Wife
http://www.borowitzreport.com/archive_rpt.asp?rec=1307&srch=

Its a hoot!

and on the chance the article disappears, I’ll archive it after the jump . . .

Read More

Category: Federal Reserve, Inflation, Investing