Meet the Author

Daniel Carroll |

Research Economist

Daniel Carroll

Daniel Carroll is a research economist in the Research Department of the Federal Reserve Bank of Cleveland. His primary research interests are macroeconomics, public finance, and political economy. Currently, he is studying the implications of progressive income taxation for the distributions of wealth and income.

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Economic Trends

Recent Changes in Household Net Worth

Daniel Carroll

During the housing bubble, the nominal value of household assets grew rapidly, peaking in the third quarter of 2007 after rising 64 percent over the course of just five years. During that same time, total household liabilities grew by 66 percent. However, because liabilities were considerably smaller than total assets, households’ net worth (the difference between total assets and liabilities) still grew by 63 percent. After peaking, the value of household assets fell precipitously. In the first quarter of 2009, household assets had lost 21 percent of their value from their peak. Total liabilities, on the other hand, remained relatively unchanged, causing household net worth to crash by almost 26 percent.

Since bottoming out in early 2009, household assets have grown again. At the same time, total liabilities have slowly declined, pulling household net worth up by 9.6 percent in the last year. In the second quarter, however, this trend changed, as both assets and net worth fell by approximately $1.5 trillion. The decline in assets did not come from tangible assets. Both real estate and consumer durable goods, which comprise tangible assets, have been increasing steadily since the beginning of 2009. The decline in total assets was brought on instead by a very sharp decline in financial assets. This category dropped by $1.7 trillion last quarter.

Decomposing financial assets, four of nine subcategories of financial assets declined last quarter: corporate equities, pension fund reserves, mutual fund shares, and deposits. The total loss from those four sources was $1.97 trillion, with nearly 80 percent of the decline coming from corporate equities and pension fund reserves.

The fall in the stock market over the second quarter can account for the large movement in assets. From the beginning of April to the end of June, the S&P 500 Index fell by 7.1 percent. Since that period, the stock market has, despite some subsequent large swings, made up some of its lost ground, suggesting that household net worth will likely resume its upward trend when the third quarter balance sheet data becomes available.