Last Updated Dec 13, 2009 3:59 PM EST
Below is a graph summarizing the asset side of the U.S. household balance sheet. The category called "Other" represents people's investments in their own businesses; "Stuff" is durable consumer goods such as cars and refrigerators (at replacement cost, not market value). "Stocks" includes shares or mutual funds that you own directly, as well as your beneficial ownership through pension funds.
[Click on the graph for a larger image]
The good news is that the value of the assets, an estimate by the Fed, has risen from the end of 2008; the bad news is that we are still behind where we were in 2005. But keep in mind that what's driving the uptrend is higher stock prices, which have had a tendency to melt in recent years. Pulling the numbers down is the falling value of residential real estate (but see below about our equity in our homes).
The Fed also provides the consumer sector with a little financial check-up, in Z.1 Table B.100 (page 104). Those numbers are off the bottom, and improving, but as a nation we are a long way from the financial health we enjoyed, or thought we enjoyed, 10 years ago.
For instance, owners of real estate now hold equity in their homes of about 38 percent -- above the 33 percent at the start of this year, but far below the 60 percent range five years ago. Household net worth as a proportion of income has risen too, to 4.9 times from about 4.5 times, but is below the multiple of six in 2004.
There message in these numbers is that because so much of our assets is in real estate and the stock market, the wealth of U.S. households is out there, unprotected, and and as we now know subject to the heavy weather of the markets. During the 1990s, gentle breezes were at our backs, and we thought we could afford to stop saving. Savings are recovering, of course, but most of us still have a long way to go to make up what we've spent from savings or lost in the markets.
"We knew we fell into a real deep hole," said Mark Vitner, a senior economist at Wells Fargo Securities Inc. in Charlotte, North Carolina. "It's encouraging to see we're at least making progress in digging ourselves out of it. American households are having to lower their sights as to how much wealth they hope to accumulate over their lifetimes. This is going to impact consumption habits for years to come."