Q1 2021 Household Net Worth: The "Real" Story
Note: With the June release of the Federal Reserve's Z.1. Financial Accounts of the United States for Q1 2021, we have updated this commentary to incorporate the latest data.
Let's take a long-term view of household net worth from the latest Z.1 release. A quick glance at the complete data series shows a distinct bubble in net worth that peaked in Q4 2007 with a trough in Q1 2009, the same quarter the stock market bottomed.
The latest Fed balance sheet shows a total net worth that is 127% above the 2009 trough. The nominal Q1 net worth is up 3.8% from the previous quarter and up 23% year-over-year. The COVID-19 pandemic has had a clear impact on household net worth - notably the immediate decline due to income losses and the Federal government's reaction via the CARES Act.
But there are problems with this analysis. Over the six decades of this data series, total net worth has grown about 10,920%. A linear vertical scale on the chart above is misleading because it fails to provide an accurate visual illustration of growth over time. It also gives an exaggerated dimension to the bubble that began in 2002.
But there is another more serious problem, one that has to do with the data itself rather than the method of display. Over the same time frame that net worth grew more than 10,000%, the value of the 1950 dollar shrank to about $0.09. The Federal Reserve gives us the nominal value of total net worth, which is significantly skewed by money illusion. Here is a log scale chart adjusted for inflation using the Consumer Price Index.
Here is the same chart with an exponential regression through the data. The regression helps us see the twin wealth bubbles peaking in Q1 2000 and Q1 2007, the Tech and Real Estate bubbles. The trough in real household net worth was in Q1 2009. This indicator is now 15.3% above trend. The annualized growth rate over this time frame is 3.15%.
Net Worth Per Capita
The next chart gives us a more intuitive sense of real net worth. Here we've divided the inflation-adjusted series above by the Bureau of Commerce's mid-month population estimates, which have been recorded since January 1959. Since the population has grown faster than household net worth, the per-capita annualized growth rate over this time frame is lower at 2.06%.
We say "more intuitive" because the per-capita adjustment brings the latest data point from the Multi-Trillion stratosphere to $413,633 — an amount we can more or less relate to.
Note: We've referred to this data series as "household" net worth. But, as we show in the chart titles, it also includes the net worth of nonprofit organizations. The ratio of two isn't clearly defined in the Fed data, and it obviously varies by asset and liability component.
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