The Federal Reserve has finally released the Flow of Funds (Z.1) data for the third quarter of 2019. Among the many things contained within the report, the Fed revealed that U.S. household (and non-profit group) net worth rose by $0.57 trillion in Q3 to a total of $113.83 trillion, a 0.51 percent quarter-over-quarter increase and a new all-time high.
Compared to this same period last year, total net worth lifted by 3.38 percent in Q3, below the cycle average (5.99 percent) but still a marked improvement from the near decade-low hit in Q4 2018 (0.71 percent). The third quarter’s gain was in part driven by real estate, which expanded by $0.18 trillion as residential real estate, the biggest asset for most Americans, benefited from home values continuing to appreciate faster than the pace of general household inflation. Mortgage liabilities also rose in the third quarter but mortgage obligations as a percent of GDP still ended Q3 at the best level in almost two decades.
Another common driver of quarterly net worth growth is the value of directly and indirectly held corporate equities, e.g. stocks and mutual funds. However, this component actually declined in Q3 (-$0.27 trillion) as policy uncertainty weighed on the market’s performance. This quarter, though, the bulls have so far regained control and the Q4 Z.1 update should therefore reflect a much improved boost to net worth from equities. Regardless, real wealth creation often occurs over a much longer time horizon because investors can therefore benefit from decades of diversified exposure to stocks and capitalize on the resiliency of the market.
Sources: FRBG, FRBSL
Post author: Charles Couch