The defining economic phenomenon of The Great Recession and the miserable recovery has been deleveraging: The ongoing reduction of household debt relative to their wealth and income.
This has been an ongoing drag the economy, sapping demand, and preventing a robust recovery.
The latest Z-1 Flow Of Funds data out from the Federal Reserve came out today, and it reveals the biggest gain in household debt since the crisis.
BUT, the general trend is that debt continues to shrink on a relative basis.
Nomura’s Ellen Zentner explains”
Flow of Funds data from the Federal Reserve revealed that household wealth declined in Q2, but the decline masks a noteworthy underlying trend.
Reflecting a more than 3% drop in US equity prices over the quarter, US households experienced a decline of $600bn in financial assets. At the same time, US household wealth in real estate gained $355bn, presaged by a firming of home prices.
Looking ahead, home prices have continued to climb in Q3, and to date the S&P 500 is tracking a more than 7% gain, together suggesting US household wealth has increased.
And on a debt-to-income basis, the decline continues, from 114.1% to 113.2%.
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