Do you feel like you have a record net worth? Perhaps not, but as a nation we do indeed have a record net worth according to the Federal Reserve. The collective household net worth in the U.S. reached $82.9 trillion in the 4th quarter of 2014, an increase of $1.5 trillion over the 3rd quarter readings.
In reality, it’s the rule rather than the exception to set a new record net worth value each quarter. Since the effects of the Great Recession on net household worth bottomed out in the 1st quarter of 2009 at just under $55 trillion, there are only three fiscal quarters that did not reflect new record net worth values. If nothing else, the trifecta of population growth, inflation, and gains in productivity should increase wealth during any average month (although the Fed numbers are not yet adjusted for population growth).
Investment holdings of households did quite well in the 4th quarter. Stocks and mutual funds accounted for almost half of the increase in household wealth at $742 billion. Housing values were another large driver of the increase with $356 billion.
Given the relatively slow housing recovery and the number of mortgages that were underwater, a rise in housing values is extremely good news. Even with the improvements, at the end of 2014 there were just over 7 million homeowners with a loan amount at least 25% greater than the estimated market value according to RealtyTrac — accounting for 13% of all mortgages.
Combined with an improving job market and dramatically lower gas prices, it is hoped that this collective increase in net worth will translate to more consumer spending and economic growth.
The news from the Fed is not entirely rosy, as the debt picture is mixed at best. Domestic nonfinancial debt increased in the 4th quarter by a seasonally-adjusted 4.7% to $41.4 trillion, the highest percentage increase since the 4th quarter of 2012. Business debt rose at a 7.2% annual rate, with most of the increase attributed to corporate bonds.
Other forms of debt are growing, but more slowly in relative terms. Household debt remains steady at 2.7% growth. Government spending is still in a relative down cycle, with only 1.1% debt growth in state and local governments and 5.4% debt growth at the Federal level.
When compared to income, the household debt level continues to show improvement. According to the Wall Street Journal, the ratio of household debt to disposable income is at 107% — a slight decrease from 108% in the 3rd quarter and well down from pre-recession levels of over 130%. That lends further optimism to future consumer spending as more households bring their debt under control.
Granted, not everyone in the U.S. is enjoying a personal record net worth. Many people are still struggling with unemployment or underemployment and wages that have remained relatively stagnant during the recovery. Wealth gains are still spread relatively unevenly and consumer spending is not likely to rise and spur massive growth rates until those issues are dealt with.
Even so, the relative growth in the U.S. has been outshining most other industrialized nations, and given the collectively poor outlook for the world economy that trend is likely to continue. It is possible that the world economic drag can bring the U.S. growth down with it, but we fully expect to be reading the same headline for the 1st quarter of 2015 — another record in household net wealth and further signs of a recovering economy.