Personal financial update
Date posted: October 21, 2011
Every three months the Federal Reserve publishes a report summarizing the financial condition of households. Did the second quarter report bring good news or bad? N.C. State University economist Mike Walden answers.
“These reports, I think, are really important — perhaps under-appreciated by the media — because household wealth and changes in household wealth has really been a driving force of this recession’s slow economy.
“The report really was mixed. … Household wealth, which took a big, big hit during the recession, was down the last quarter, although it’s up slightly from a year ago.
“On the good side, households continue to pay down on their debt. And we are actually saving more:: We’re saving at about a 5 percent annual rate clip.
“Of course the fact that we’re saving more and paying down on debt is also contributing to the sluggish economy, because we’re not spending as much. But that’s what we need to do in order to get our financial situation in order.
“The big issue in the second quarter was that although financial assets were up from a year ago, the value of our financial assets actually went down in the second quarter, as did the value of our real estate — primarily our homes. And unlike financial assets, which are still higher this year compared to last year, real estate assets are still down. In fact, they’re down about 5 percent from a year ago.
“So, this indicates … that the continuing big problem regarding household wealth is the weakness in real estate, particularly in the value of residential housing.”
Category: Economic Perspective