Federal Reserve He tracked household balance sheet data going back to 1952.
Each quarter they provide details on the total assets and financial liabilities of households and nonprofits.
This data doesn’t tell us where the economy is headed but it can help understand Americans’ overall situation for what will happen next.
As of June 30 of this year, American households have the highest levels of assets, liabilities, and net worth ever:
The total is $174.4 trillion in assets, $20.1 trillion in liabilities, and a net worth of $154.3 trillion.
That’s a lot of money.
Below is a breakdown of assets by financial (stocks, bonds, cash, etc.) and non-financial (nonprofits, consumer durables, real estate):
About two-thirds work in financial assets and one-third in non-financial assets.
Mortgage makes up the bulk of household debt:
Housing debt makes up approximately 64% of total liabilities, while consumer credit (auto loans, credit cards, student loans, consumer loans, etc.) represents 25% of the total. Other types of debt account for just over 11% of total liabilities.
The debt-to-asset ratio has remained surprisingly stable over the decades, although there have been times when things have gotten out of control.
Historically, the average debt-to-asset ratio has been around 13% (currently 12%), rising to 20% in 2009 at the height of the financial crisis, then falling to 6% in 1952 before consumer credit exploded this year. nation.
Looking at the liabilities of disposable personal income can put things into perspective:
Debt was out of control in the run-up to the 2008 financial crisis. It is now back to its 2000 levels.
Long-term trends in these numbers are interesting from a historical perspective, but it may also be useful to look at changes over recent cycles to help explain how certain economic environments have evolved.
For example, the 2001 recession was relatively mild.1 Since 2001, when things bottomed out during the third quarter of 2007 (when things peaked before the Great Financial Crisis), total financial assets have risen by 64%.
That’s not bad until you consider that total liabilities rose a whopping 94% in the same time.
There’s a reason the 2008 disaster was a debt crisis. People borrowed a lot of money.
Now let’s look at the growth in both assets and liabilities since things bottomed out after the Great Financial Crisis.
Since the end of the second quarter of 2009, assets have grown by 136% while liabilities have increased by only 40%. Assets rose by more than $100 trillion. Debt increased by $5.7 trillion.
This means that net worth has swelled by approximately 160% from the bottom of the global financial crisis.
If you want to know why the economy has remained so resilient, just look at household budgets that have been repaired since one of the worst modern economic downturns in history.
Even if we look closely at the last pandemic cycle, we find that asset growth exceeded debt growth.
Since the end of 2019, just before the outbreak of the pandemic, financial assets have risen by 31% while liabilities have risen by 21%.
This is not a prequel to 2008. Not even close.
Does this mean that households are able to keep the economy out of recession for the foreseeable future? not necessarily.
Granted, consumers make up 70% of the economy and most consumers are doing very well. But this can’t go on forever without consumer credit eventually rising.
The spending boom caused by the pandemic can only last so long.
It is not possible for the stock market and housing market to rise as much as they did. Even if we don’t see the market crash like people have been predicting forever, the gains should at least level off at some point.
The good news is that families have a good margin of safety at the moment. Home equity has grown from $19.4 trillion at the end of 2019 to more than $31 trillion now.
Not all family finances are created equal but collectively things are in a pretty decent place right now.
There’s always a chance something will come out of left field that weighs on the economy. But consumers remain as prepared as ever for a slowdown.
Unless the economy shifts into gear again and experiences feverish activity in the coming years, American household budgets will be in a good position to withstand a moderate recession.
Consumers may be the driving force that makes the next recession moderate in the first place.
In-depth reading:
How wealthy are the baby boomers?
1The dot-com crash in the stock market was much worse than what happened in the economy. The recession only lasted 8 months while GDP fell by 0.3%. The unemployment rate rose to 6.3% by the summer of 2003, but returned to 4.5% three years later.