U.S. Net Worth Declines By $1.2 Trillion

Lifestyle and Budget

We have become accustomed to constantly setting new records for U.S. net worth every quarter. Even with slow economic growth, the U.S. has experienced a record-breaking total net worth every quarter since 2012. That string was broken in the third quarter of 2015, according to the recent Flow of Funds section from the Financial Accounts of the United States report by the Federal Reserve.

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Our collective net worth fell in the third quarter by $1.2 trillion to a total of $85.2 trillion. The drop was attributed to the difficult quarter in the stock market. More than $2.3 trillion in corporate stock value was wiped out during the August market correction, and that loss could not be overcome by increases in other sectors such as the $482 billion in real estate gains.

Equities remained relatively flat through the end of the third quarter and began to rise at the beginning of the fourth quarter. Barring an end-of year collapse, this quarterly drop in net worth should be an aberration. As of this writing, the market had experienced a sharp two-day drop, so a fourth-quarter net asset gain is not a given — but it is highly likely.

For 2015, the U.S. averaged a net worth of $85.8 trillion, well above the $84.1 trillion registered at the end of the 2014. Barring an economic collapse, we should stay well above that mark.

Net worth may have suffered in the third quarter, but the domestic non-financial debt picture looks a bit better compared to the previous quarter. Total domestic outstanding debt (non-financial) at the end of the third quarter was $44.2 trillion, representing a 2% annualized growth. That is down from a 4.6% annualized rate in the second quarter.

The only category of domestic non-financial debt that saw a greater increase in the rate of growth from the previous quarter is state and local government debt, which rose to 1.7% from 1.0%. The rate of household debt growth fell from 4.2% to 1.5%, business debt dropped from 8.4% to 4.7%, and even the rate of growth in federal government debt shrank from 2.4% to a nearly flat 0.2%.

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Total government debt, including both federal and state, is still the largest debt in this category at $17.5 trillion. Household debt followed behind at $14.1 trillion and non-financial business debt came in at $12.6 trillion.

Consumer credit grew by 7.2%, but that is not necessarily a bad sign — it could signal increased demand and future economic growth.

On the subject of growth, the Fed report shows the gross domestic product (GDP) at $18.06 trillion. Personal consumption expenditures increased by $130 billion, down from the $173 billion increase in the second quarter. We continue to export more than we import, with a steady annualized shortfall of between $500 billion and $600 billion.

None of these numbers is extremely troubling, even with the decline in net worth. With respect to debt, the third quarter represents a step in the right direction; concerning growth, we are likely to continue on our slow and steady pace. However, if stock markets continue to tumble, we could be setting the wrong kinds of records in 2016.

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