Among the more overlooked data sources out there is the Federal Reserve’s Survey of Consumer Finances (SCF). My guess as to why it’s overlooked is that it’s only published triennially – not exactly a high frequency release. The most recent (2013) update was issued last September. As I saw very few, if any, write-ups of that release, I’m guessing I’m not the only observer who overlooked it.
In his always excellent daily (this from July 15, 2015), my pal David Rosenberg did some digging into the SCF, and what he found is quite intriguing, and perhaps goes a long way toward explaining the economy’s seemingly never-ending lethargy and failure to achieve a meaningful “escape velocity.” Let’s have a look.
“As I ponder the generally soft tone to U.S. retail sales – not just the poor June data and the downward revisions but the lack of follow-through generally in spending, despite stepped-up employment growth, the wealth effect (supposedly) from housing and equity price appreciation, ultra-low interest rates for the past seven years and relief from sharply lower energy prices – I am left with the conclusion that there must be something structural afoot that is keeping just enough households on the sidelines to prevent consumption growth from accelerating.”
“Consumption growth” = demand, which has been, and continues to be, the missing ingredient to a more robust recovery.
Dave notes that household net worth is at a new all-time high (that data from the Fed’s Z.1 Flow of Funds report). And that “the average household has seen its net worth stabilize from 2010 to 2013 (from the SCF) at $534,600.” This much is certainly all true.
He then proceeds to drill down a bit deeper and, in the process, gives a quick lesson on the difference between median and mean.
Here’s the mean net worth of all households:
(I note occasional minor discrepancies above and below between Dave’s numbers and mine. We pulled our numbers from slightly different data sets at the same source – Dave from the Fed’s “Internal Data” while I pulled the “Public Data.” The differences are inconsequential.)
Hard to see what all the fuss is about looking at the chart above. Nasty recession. The average household coughed up about 15 percent of its net worth between 2007 and 2010, and things have stabilized since then. No biggy. That notwithstanding the fact that there’s been barely any growth since 2001. But I digress.
Back to Dave (emphasis mine): “While the average household has seen a 3.7% wage increase (2010 to 2013) to $87,200, the distribution has obviously been very skewed because the median has declined nearly 5% to $46,700, a 20-year low [Ed note: This for the 35-44 age cohort; see below chart]. Indeed, to really show how totals, and how averages can disguise what is really going on behind the scenes, consider that median household net worth in the United States has declined 2% over this time frame to $81,200 and down 24% from the 2007 bubble peak – not just down 24% from 2010 to 2013, but now basically the same level as in 1992.”
Dave continues: “The bubble-burst destroyed two decades of net worth for the median household. For the 45-54 age cohort (below), median net worth has absolutely plunged – actually declining through the 2010-2013 recovery phase by 17% to $105,300; down 50% from the 2007 peak and some 40% lower today than it was in 1989.”
Unsurprisingly, the situation for the 35-44 age cohort is equally dire, only on a lesser scale:
This is all just further evidence of wealth and income inequality and the continued gutting of the middle class. Beyond that, it also speaks to the lack of demand that has been the major culprit behind our stop-and-go recovery. Sadly, it does not look like there’s much light at the end of the tunnel.