Saturday, March 10, 2007

Household savings - or not

On Thursday, the Federal Reserve released their "Flow of Funds" report for 2006. It includes a section that provides details on household assets and liabilities. During 2006, household assets increased by $4.9 trillion while liabilities increased by $1.1 trillion. That means household net worth increased by $3.8 trillion. To put that in perspective, the annual rate of consumption expenditures in Q4 were $9.4 trillion.

This explains our negative household savings rate in the US. If net assets are increasing at 40% of annual consumption expenditures it doesn't look like most households have much reason to save.

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