Owning Less of the Ownership Society: Fed Verifies Fall In Household Income and Wealth Accumulation in Recent Years

I'm sure there will be lots written on this report from the Fed on changes in consumer finances since 2001, so here's some highlights to get things started from a WSJ report along with figures from the Fed study. The report shows that between 2001 and 2004, real household income is down, household wealth growth slowed sharply and fell for some groups, and household debt burdens are up. Not exactly the economic miracle from tax cuts and other administration policy we have been hearing about:

Fed Study Finds Drop In Household Incomes, WSJ: Average U.S. household incomes fell in the 2001-04 period after adjusting for inflation, and growth in household wealth slowed sharply from the previous three years, according to Federal Reserve data released Thursday. The Fed's most recent Survey of Consumer Finances shows real average household income shrank in the latest three-year period covered after

Average household net worth still rose 6.3% on an inflation-adjusted basis, "however, the measured gains in wealth in the 2001-04 period pale in comparison with the much larger increase of the preceding three years," according to a summary of the Fed survey results. In the 1998-2001 period, net worth surged 28.7%, and in the three years before that it grew 25.6%, the survey data show.

Household debt as a percentage of assets increased to 15.0% in 2004 from 12.1% three years earlier, with residential real estate's share of total debt holding steady at about three-fourths. "Even with interest rates lower in 2004 than in 2001, the (survey) data show a moderate increase in measures of debt burden," the Fed said.

The Fed also shows some signs of increased wealth inequality. The data show median wealth dropped for families with the bottom 40% of incomes, and rose for higher-income families. But on an average basis, net worth either held steady or increased for all income groups.

With interest rates generally lower and stock markets trending down in the latest three-year period, the overall share of financial assets in household portfolios declined. Families that held stocks directly or through managed funds fell to about 49% in 2004 from 52% three years earlier.

An increase in nonfinancial assets, primarily real estate, helped to balance the decline. Nonfinancial assets grew to 64.3% of total assets in 2004 from 58.0% three years earlier. Homeownership was up 1.4 percentage points to 69.1% in the latest three-year period, while home values rose dramatically in many areas, the survey shows.

See also Tom Bozzo at Marginal Utility, Washington Post, NY Times.