The Federal Reserve Board of Governors today released a new report today noting changes in net worth for households and nonprofit organizations.
As a result, the Drudge Report featured, at the page top, the headline “ Households see biggest decline in net worth since the financial crisis... “
The placement and asserted urgency of the headline may overstate things. This number could potentially signal a brewing recession, although, since the data is highly aggregated, it tells us little about how a sizable number of households are actually affected.
Using the Fed’s data, we find that net worth dropped quarter-to-quarter by 3.45 percent. That’s the largest drop since the fourth quarter of 2008, when it dropped 5.87 percent.
Taking the numbers year-over-year, growth in the fourth quarter was slightly positive, increasing 0.8 percent, which, however, is the smallest growth rate since the third quarter of 2009.
The drop was due to the fourth quarter’s sizable drop in the stock markets. For households with heads not near retirement age, this isn’t much of a problem. For older household heads, however, the drops could serve as a wake-up call. If the stock market does enter a short-term down cycle this could be a problem for those who won’t have time to wait around for stocks to recover their value again following another recession.
