The Federal Reserve’s Flow of Funds report issued each quarter might not sound like the most exciting topic to discuss over a happy hour, but something inside that report should be of great interest to much of the public. It turns out that the net wealth of households rose by a stunning 4.5% during the first quarter of 2019. This means that all that stock market selling and volatility at the end of 2018 that ate into household wealth was made up and then some.
According to the Federal Reserve data, the total value of household assets minus liabilities rose to $108.6 trillion by the end of the first quarter of 2019. That 4.5% gain more than made up for the 3.7% loss seen in the fourth quarter of 2018. What should also stand out, with the early 2019 stock market rally to help, is that this also appeared to be the largest single quarterly gain going back all the way to 2004.
The Federal Reserve tracked a 12.4% gain in the value of holdings in public corporate equities, while real estate values gained 1.7% on average.
Before getting into whether the wealth is shared across America, note that this monthly report does not break down how all this wealth is distributed. The Federal Reserve also does not adjust the data for inflation. If a family does not invest and does not own a home, they likely saw none of the gains in household wealth. Some other points of caution may be seen in the household net wealth report.
There was some bad news in here for banks and lending institutions who want to lend more and more money, which in turn would be expected to lead to higher and higher spending. Household debt grew by just 2.3% in the first quarter, after a 2.8% gain and a 3.5% rise in the respective prior two quarters. That lower debt also would coincide with slower spending that many retailers have discussed throughout 2019.
The household saving rate rose up to 6.7% of the total disposable personal income, after having risen by 6.5% in the prior report. Sadly, there is competition among saving and spending when it comes to dollars held by households. If a household is saving up cash and in its investments, then it isn’t spending that cash and putting it back into the economy. As a reminder, about 70% of U.S. gross domestic product comes from consumer spending activities.
Businesses did make up some slack that consumers were soft on, with a 6.6% rise in debt. It had risen just 3.9% during the fourth quarter of 2018. That said, the Federal Reserve also has commented that businesses and investors should take that rising corporate debt into consideration.
Outside of the drop seen in the fourth quarter of 2018, there had not been a single quarter in which household net wealth had dropped since the third quarter of 2015, and a decline before that had not been seen since the third quarter of 2011.
Going back to households’ net wealth before the recession might put some of today’s levels in perspective. Household total wealth peaked at $69.2 trillion in the third quarter of 2007 ahead of the recession, and it hit a trough of $56.7 trillion in the first quarter of 2009. It was not until the third quarter of 2012 that household net wealth finally went back above the prior $69.2 trillion.