Data snapshot: Despite economic turmoil, consumers remain wealthier and relatively underlevered

Despite the ostensible ongoing economic uncertainty, the following aggregate data presentation demonstrates a relatively positive picture regarding the financial health of the consumer in the U.S. as well as elsewhere. I personally have been impressed in the ability of the average household to remain relatively underlevered when compared to other times over the past 20 years. The growth in total household wealth has also been remarkable since the Great Recession. Of course, there are many households that have been on the losing end, and these are the households that do not own the assets that benefit from Federal Reserve monetary policy.

Despite the runup in asset and house prices, U.S. household debt to GDP remains fairly subdued.
Household debt to GDP levels in Germany are lower; Homeownership in Germany is lower overall than in most other developed countries. In 2017, Germany’s homeownership rate was 51%. The U.S. data represent a relatively stronger household balance sheet than in most other developed nations.

 

Regardless of country, there is a high positive correlation between homeownership rates and total household debt to GDP levels. However, the U.S. homeownership rate is typical, yet its household debt levels are lower

List of countries by home ownership rate – From Wikipedia

Since the nadir of the great recession of 2008 and advent of QE, total household net worth has exploded higher. Of course, not all the wealth is shared evenly. For many households, existing mortgage payments remain small. For new mortgage borrowers, the payments as a percent of disposable income is greater. As rates remain higher for longer, mortgage debt service payments as a percent of disposable personal income will climb

According to the NY Fed’s Center for Microeconomic Data;

Mortgage and Auto Loan Balances Help Push Up Total Household Debt

The Quarterly Report on Household Debt and Credit for the first quarter of 2022 shows a solid increase in total household debt of $266 billion, to $15.84 trillion. Balances now stand $1.7 trillion higher than at the end of 2019, before the COVID-19 pandemic. Mortgage and auto loan balances rose by $250 billion and $11 billion, respectively, in the quarter, although originations for both subsided from historically high levels in 2021. Credit card balances declined by $15 billion, in line with seasonal trends typically seen at the start of the year, but are still $71 billion higher than in 2021:Q1, representing a substantial year-over-year increase.

Conclusion

I am impressed with the aggregate numbers here. Of course, many households are struggling and will continue to struggle. The differences between average and median household net worth are stark as fewer households possess a greater percentage of assets, but the overall levels still represent a set of circumstances in which the American asset-owning households have seen their balance sheets climb dramatically since 2008. These balances should help shield Americans from adversity, especially considering that a vast majority of household wealth remains untapped. Thus, if asset prices experience a lasting downtrend, most households will be able to weather the storm. In other words, I do not foresee the types of asset runs or “Minsky” moments that made the 2008 crisis worse than it should have been.

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6 thoughts on “Data snapshot: Despite economic turmoil, consumers remain wealthier and relatively underlevered

  1. Im more than happy to find this page. I wanted to thank you for your time for this fantastic read!! I definitely really liked every part of it and i also have you book-marked to look at new things in your site.

  2. Chris, I get a real estate report from a local lender every so often and it mentioned commodity prices are down. I’m getting ready to buy raw materials to make some work related tooling and I bet their prices have NOT dropped. In fact they probably went up! This might be true for anything we have to buy be it steel or food.

    That has me wondering what factors are used to keep end user pricing high or increasing at a steady pace? Maybe I’m answering my own question, but higher fuel prices along with whatever other costs are required to stay in business? I’d like to think there is a solid reason and not just gouging.

    I apologize if this is a stupid question but I’m far from a financial expert and much of what you write is way over my head. But if you need all sorts of work done on your 1970 Plymouth with a 440 six barrel engine I’m your guy! I guess we all have our strengths and weaknesses.

    1. Your anecdotal observations makes sense. Prices tend to be sticky anyway, and when it comes to commodity prices what we see as the spot and future prices can often bear little resemblance to the finished products that are based on those commodities.

      If the price of wheat in the future’s market continues to move lower, I doubt we’ll ever see a reduction in the price of bread on the shelf.

      If the price of lean hogs and cattle in the futures market comes down, I doubt we’ll ever see a reduction in the price of meat.

      We might see more sales, but the regular prices will remain elevated or the portion sizes will be reduced.

      Price of sugar in the future’s market may drop quite a bit as well as the price of cocoa, the prices of ice cream will continue to escalate or the portions will get smaller.

      The only time we see a real hard relationship is when it comes to the price of gasoline and the finish goods in which there is little difference between what is in the futures market. And that’s because there is little change between the future market and the finished product.

      This is why we recently saw a reduction in the Philadelphia fed Manufacturing index prices paid component. Manufacturers and producers are beginning to see a letup in some of their basic material costs and the growth rates.

      If we are to see a reduction in the rate of inflation, I suspect it will start with the PPI and work its way down until the CPI adjusts.

      As for many of the products that you purchase for mechanics, I doubt you’ll ever see a reduction in the prices again. You’ll just see a softening in the rate of growth or a reduction in the second derivative. You just need to pass along the costs to your customers.

  3. USA, Inc. produces at least 40% more gas than big bad Russia. Who’s really winning?

    #winning
    ————

    EU Urges Countries To Cut Gas Consumption By 15%

    https://oilprice.com/Latest-Energy-News/World-News/EU-Urges-Countries-To-Cut-Gas-Consumption-By-15.html

    The European Commission unveiled on Wednesday measures for the EU to conserve gas in the face of risks of further reduction or a shutoff of Russian gas deliveries, asking member states to reduce gas consumption by 15% until the spring.

    The Commission proposed today a new legislative tool and a European Gas Demand Reduction Plan, setting a target for all member states to reduce gas consumption by 15% between August 1, 2022 and March 31, 2023.

    The new regulation would also give the Commission the possibility to declare, after consulting Member States, a ‘Union Alert’ on the security of supply, imposing a mandatory gas demand reduction on all Member States, the EC said.

  4. Bad news for the US Treasury in its true objective with the Federal Reserve to repudiate as much debt as possible in the shortest amount of time. 🤣🤣🤣
    ————-
    How China Could Trigger The Next Sharp Selloff In Crude

    •China’s very-strict covid policies continue to be a major risk for crude markets.
    •China was almost single-handedly responsible for the commodities pricing super-cycle that occurred between 2000 and 2014.
    •Any major resurgence of covid in China could bring crude prices down significantl

    https://oilprice.com/Energy/Crude-Oil/How-China-Could-Trigger-The-Next-Sharp-Selloff-In-Crude.html

    1. What an odd timing regarding Libya’s oil production. What a strange coincidence regarding Columbia’s new leftist leader, Petro, who wants to dismantle its large “fossil” fuel industry.

      Come on, UST… Keep that debt repudiation machine cranking out inflationary losses for the masses while real bond yields are still stunningly low.

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