Americans' net worth took a dive in the first quarter

Yes, you have gotten poorer. And at an accelerated pace.

The net worth of U.S. households fell in the first quarter, the second straight decline, thanks to the double-whammy of sliding home values and the plunge in stock prices, the Federal Reserve said in a report today.

The central bank’s so-called flow of funds report estimated the net worth of American households at $55.97 trillion as of March 31, down $1.7 trillion, or 2.9%, from year-end. That was more than three times the $530-billion drop in the fourth quarter.

Home values fell by $329 billion in the first quarter after a $196-billion drop in the fourth quarter.

But it was the slump in stocks that really hammered Americans’ net worth: The value of their stock accounts and mutual funds sank by $956 billion in the first quarter, after a $598-billion decline in the previous quarter. (The market has recovered quite a bit since, of course.)

Still, at least by the Fed’s estimation, Americans’ overall balance sheet remains quite healthy. Net worth, remember, is assets minus liabilities. Households’ assets, at $70.46 trillion, dwarf their liabilities of $14.49 trillion, which mainly consist of mortgage and consumer debt.

What the totals don't show, however, is how net worth is distributed. A huge chunk of it is in the hands of the wealthiest people. Down the income chain there have to be plenty of people with negative net worth, especially in light of the housing bust.

Some minor encouraging news in the Fed’s report: Households continued to build up cash savings, which reached $7.59 trillion at the end of March, up from $7.08 trillion at the end of the third quarter.

On the other hand, as every saver knows, you’re earning next-to-nothing on cash accounts now, thanks to the Fed’s interest-rate cuts.

Comments

[Phil]

This is useless, pointless reporting. Moreover it is the kind of media obsession with temporally-restricted information that talks people into feeling worse off than they are. If we don't have a recession, you're determined to drive group consumer psychology into one.

So no kidding: personal net worth erodes a bit between boom cycles. So what? Wait awhile and this too shall pass.

[Robert Martin]

I agree with Phil. Why not give numbers for median and average net worth? If the changes have not been evenly distributed, then tell us how they changed in each quartile. At least no trees were wasted in distributing this drivel

[smi2le]

Anyone who doesn't realize that the middle class is being impoverished is either a moron, or a salesman.

[Heather Czerniak]

Yes, most of us are poorer now. I'm not inclined to believe any attempt to gloss it over. First, we need to remove the burden of federal taxation. Then, we need to abolish the Federal Reserve. Bot have proven to be the largest drags on our economy and the federal government is squarely to blame.

We also need to destroy the two-party monopoly the Democrats and Republicans have had in Washington. This year I'm voting Libertarian, win or lose. It's time a third party had a chance.

[John Lee]

America's stalling because we have saddled our economy on the back of an oil and energy intensive technology: roads and cars. While the rest of the developed world has and is installing highly efficient electric rail transit systems we're continuing business as usual installing roads as if it's 1950. Our economic problems are rooted in our transit infrastructure. We will make no further progress until we begin building energy efficient mass transit systems. Don't get it? See Europe. They've been living with double, even triple our gas prices for decades and have the most energy efficient transit systems and city layouts imaginable.

Back in 2005 we sold our California house because of my extreme commute (and gas prices then were nowhere near what they are today). I shudder to think how my former neighbors, all of whom commuted long distances, are coping. If planners and builder had built modern transit systems linking cities to all the new housing suburbs many new home buyers (like me) would still be in our new homes. But the price of gas and long commutes are driving people over the edge (pardon the pun); they can't tolerate it any more.

We're in trouble until we open our eyes and follow the lead of other developed nations. They've been living with $8.00 gasoline for decades; while we're falling apart at the seams over $4.

[Chris]

Phil hit the nail on the head. It's this kind of reporting that prompts the ridiculous e-mail from smi2le about the impoverished middle class. Impoverished? Yeah, and it's probably president Bush's fault too, huh?

[LA native]

Great information. Thank you to Tom Petruno. Such "high level" flow of funds information provides an overview of the economy. Based on that, I would like to see data on (a) distribution in the LA metro region, (b) distribution between home owners and renters, (c) an analysis of the impact(s) of outside "investment dollars" vs local market dollars, and (d) changes to above at 1 year increments since 1980. Thank you

[Liam]

I'm surprised energy prices weren't included in the mix. It's no surprise that the top 5% hold the most assets. So much for the American Dream.

[Michael Snyder]

To days ago www.bloomberg.com ran an headline, "Stocks Up on Oil Surge". Today with the weekly bubble prediction coming from Morgan Stanley the headline reads, "Stocks Down on Oil Surge".
After being chastised by "martin" some might retreat from this forum, but I'm inclined to press further. What I'm looking for here is some kind of a "logical" pattern a person versed in physics can wrap their head around when observing the behavior of the markets. When the same signals produce both gains on one day and huge losses the next, one has to wonder if there really are any "experts" in these markets. To the untrained eye the "movers and shakers" driving the commodities markets tend to react as coolly as a schoolyard full of hungry children who heard ice cream's on the menu and arrived to find broccoli.
As to the commodities markets improving or even standardizing the efficacy of goods, "fair to middlein'" was a well known and common standard grade of grain well before the evolution of the exchange system we have now. On the bottom line ALL costs associated with ANY goods or services are paid by the consumer. Anyone who thinks otherwise really needs to examine the structure of any food chain. You can damage the bottom for a while, but eventually your actions will effect the "top predators".

[Susan]

Funny, did anybody complain about useless, pointless reporting when the media was restricting information that talked people into feeling BETTER off than they really are ?

Confidence based on false prosperity has lead people to do some incredibly stupid things, like take out ARM loans with teaser rates or negam loans.

People should have been complaining back then about the media coverage of the housing boom, before it went bust, but they didn't, because they were feeling too good.

[OD]

I think you are forgeting to add the gvt debt...since in the end it has to be brought "on balance sheet" by the consumer...finance 101

[martscan]

Mike Snyder:

Mike, I don't have an axe to grind either way...I made an obscene amount of money today and couldn't be in a better mood..in fact, I'm celebrating with a bottle of '86 Ramonet Montrachet, but to keep my feet on the ground I'm also having Ritz crackers with Velveeta.

I don't understand why you seem to not only be against futures markets, but seem to fight any explanation that might help you better comprehend their functions. What is it with your wanting an explanation from a physicist when you can't even grasp the broad concept? Major investment banks and brokerage houses employ hundreds, if not thousands, of PhDs who do nothing but work complex logarithims and equations and designing computer programs in their 'black boxes' to discern price patterns...yet we have all seen the huge melt downs that have occurred...and you want to
'wrap your head around' something akin to 'see Spot run'. Because of the unpredictability of markets, I have as much chance of trading successfully as a room full of PhDs...and I've been doing it for 45 years.

As to the apparent contradictory news captions, these are errors made everyday by the writers and editors of the media. A day hardly goes by that I don't chew out the financial guy at USAToday...he constantly screws up the AP wire.

To illustrate the inanity of your remarks concerning futures markets...we all know that if an examining lawyer can impeach a witness on just one of his statements, juries can fairly discount the entire testimony of the witness. 1. Look up "efficacy", markets do not make gold any more gold than it is...or change a T-Bill into a Note or alter its face value or effectiveness beyond what the user intends for it to do. 2. "fair to MIDDLIN" was NEVER a descriptive term from the grain industry. The term originated in the early cotton exchange, I believe in New Orleans, and describes the length and quality of cotton. I use it all the time to describe severity of my hangovers.

Mike, you're most likely a nice guy, but this tutorial has ended. I'll give you a nice, relatively safe, cheap trade you can get your feet wet with in commodity trading. Buy July sugar and sell October sugar simultaneously. $280.00 gets you long 112,000# of sugar for July delivery and 112,000# of sugar short for October delivery. The price difference between the two contracts is all that matters. July is presently under October...you want the difference to narrow. 1/100th of 1 cent = $11.20...if the price narrows 1/4 of a penny you double your dough. I guarantee you, when you hit a 4 bagger you don't give a gd about the efficacy of spit, let alone sugar.

[martscan]

OD:

Would you kindly explain what national debt being "on balance sheet" by the consumer means? I'd appreciate it. Thank you.

[sharon]

Well, let's see. 5.7 trillion divided by 300 million is about $19,000 average lost net worth per person in the US, in one year's time. That comes to about $76,000 in lost net worth per family of four.

As pointed out, the 5.7 trillion is not evenly distributed throughout the population. Most of this loss in net worth is probably in the form of declining real estate values--a loss that falls heavily on the middle class, and also proportionately on the more affluent classes. We are nowhere near done with losses of this kind. Another area of heavy losses, it appears to me, is losses to employee retirement plans. I say this because I personally know people who have had losses in the tens of thousands in these plans.

I'd say the loss in net worth falls heavily on the middle class. The stock market has certainly remained healthy throughout the reporting period, which would tend to indicated that the investor class has not been hard hit.

The poor probably didn't have this amount to lose in assets, nor the ability to take on this amount of additional debt--with the exception of mostly young people taking out student loans.