Christopher Conkey wrote an article in the Wall Street Journal Typical U.S. Family's Net Worth Edged Up Only 1.5% in '01-'04 (subscription required).
WASHINGTON -- After growing rapidly during the boom of the 1990s, the net worth of the typical American family rose only 1.5% after inflation between 2001 and 2004, the Federal Reserve said in an update of a survey it does once every three years.
The Fed said the net worth of the median American family -- the one smack in the statistical middle -- was $93,100 in 2004. Net worth, the difference between a family's assets and liabilities, rose a robust 10.3% between 1998 and 2001 and 17.4% in the three-year interval before that.
A booming housing market boosted the typical American family's wealth between 2001 and 2004, but stagnant stock prices and rising debt offset many of those gains.
The report, the most comprehensive survey of household wealth, also found a widening of the gap between households at the top and the bottom of the economic ladder. "While the typical American household basically ran in place, less affluent households actually lost ground," said Stephen Brobeck, executive director of the Consumer Federation of America.
The Federal Reserve provides the report Recent Changes in U.S. Family Finances: Evidence from the 2001 and 2004 Survey (PDF) on its web site.
The snippets of information provided by the Wall Street Journal should cause investors to pause and reflect. During the past few years, many consumers used their homes as an ATM. Household debt escalated while home values increased. But now as interest rates rise, housing is cooling. If housing prices decline, then many families will be facing some difficult choices.
In addition to higher interest rates, we also have higher energy prices. Moreover, inflation is likely higher than 2% or so as reported by government statistics.
I am curious to see if this report and its conclusion have any effects on the market on Friday. In my view, the market has been rather directionless over the last several sessions. I do not see a catalyst for moving the markets in one direction or the other. But I think this report might fuel the bears' concerns about the strength of the consumer and her ability to keep propelling the economy forward. The bulls will point to the fact the net worth has continued to increase despite some severe shocks to the economy, and now that the economy has normalized, we can expect the prior rate of household net worth to continue. I tend to side more with the bears in this argument, but I would not be surprised to see the market side with the bulls.
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