Latest Economic Reports a Mixed Bag

U.S. household net worth dropped while personal income rose in the second quarter of 2008, according to a pair of government reports released Sept. 18. The Bureau of …

U.S. household net worth dropped while personal income rose in the second quarter of 2008, according to a pair of government reports released Sept. 18. The Bureau of Economic Analysis said almost all of the increase in personal income could be attributed to the tax rebates provided under the Economic Stimulus Act earlier in the year. The Federal Reserve didn’t mention the rebates in its quarterly flow-of-funds release, but it did report a surge in personal savings and disposable net income in the quarter. The savings jump may be attributed to some people’s deciding to bank or invest the rebates rather than spend them, as the government intended.

The Fed also reported that the net worth of households and nonprofit organizations fell 0.8 percent, the third straight quarter of slide, ending the quarter at $56 trillion. Owners’ equity in household real estate continued a decline that began a year ago, dropping 3.3 percent to $8.79 trillion in the quarter and down 11 percent from $9.9 trillion in the second quarter of 2007. Homeowners’ equity as a percentage of value was off 1.7 percent, falling from 46 percent to 45.2 percent.

Mortgage lending was down last quarter, with the biggest drop in residential loans—a net change of $29.5 billion in the quarter, down 89 percent from first quarter 2008. Multifamily residential mortgage lending was off 14 percent, with $65 billion net new debt. Commercial lending continued to decline, falling 28 percent to $137 billion in the quarter.

Where’s all that net worth?

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The value of assets held in the personal sector (which includes nonprofits as well as households) declined 0.6 percent last quarter, to $39.8 trillion. The biggest movement of assets was into mutual fund shares, which picked up $88.8 billion. This gain represents about half the amount lost from corporate equities, which saw their value in personal holdings decline by $172.5 billion. Miscellaneous and other assets picked up $35.3 billion in the quarter, while Treasury and municipal securities gained $27.9 billion. Corporate bonds and life insurance reserves also saw net gains.

The personal sector went further into debt in the second quarter, with total liabilities rising to $55.2 billion. Although aggregate mortgage lending was down, the amount of outstanding debt increased by $17.8 billion on household mortgages and $39.1 billion on other mortgages. While this may seem anomalous, there are several possible explanations—fewer refinancing, fewer pay-offs, and possibly some effect from the increase in delinquencies reported by the Mortgage Bankers Association.

Outstanding consumer credit was up $29.4 billion, a 1.2 percent increase, and “other liabilities” grew by $42.7 billion. Some of the increased personal liabilities were offset, however, by a decrease in security credit—down $74.9 billion in the quarter.

More coming in

The good news from the Fed’s report is that, in aggregate, Americans had more money coming in during the second quarter, including a 37 percent increase in rental income. Wage/labor income was up 0.8 percent, and proprietors’ income rose 0.5%. Net dividends and interest also were up. Add in those rebate checks, and these increases might have given many people a little extra to invest.

The second quarter numbers will provide a measuring stick for this week’s market turmoil and whatever shake-out remains in the coming weeks. Luckily these reports are published quarterly, so there is time for calm to return before they come around again.

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