Wednesday, September 25, 2013

Household Net Worth vs. Disposable Personal Income

Click to enlarge. Meetings

None of us is as dumb as all of us.

Source Data:
St. Louis Fed: Custom Chart


Rob Dawg said...

Head, shoulders, knees and toes...

Stagflationary Mark said...

Rob Dawg,

Don't you be using witch incantations on my site without at least completing the ritual! ;)

Head, shoulders
Knees, toes
Bags, holders
Stocks, woes

Sustainable Gains said...

Awesome plot!

It would be lovely to see this sort of chart broken out by income group. This version most likely skews to reflect the 1% (who actually have household net worth). For the middle classes (where household net worth is mainly home equity) and the lower half (where net worth is not readily achievable) it would look quite different... Is that data available?

Alternatively, if there were data for median values that would be interesting too...

Stagflationary Mark said...

Sustainable Gains,

I would love to chart your request but the Z.1 report doesn't concern itself with median net worth and median income.

Like you, I think it really would be interesting to see though.

For what it is worth, I suspected it would be an ugly chart when I started this blog in 2007. "Subprime contained" my @$$. ;)

Sustainable Gains said...

There is detailed household net worth data (including by percentiles of net worth, and percentiles of income) included in the Wkipedia article (link below with references to original data), which appears to be available every 3 years, but it only goes to 2007. There ought to be newer data by now. Accounting matters since home equity and pension funds don't always get counted.

I couldn't find similar data on disposable income, but we could proxy that using a different income metric that is broken out by income or net worth...

Stagflationary Mark said...

Sustainable Gains,

It's tough to find good median data in general.

Even median household net worth is suspect when it comes to drawing conclusions to me.

Are we really better off if two people work in a household as opposed to just one? And can we extrapolate the trend into the future?

I'm talking about women entering the workforce of course.

Sustainable Gains said...

I agree, "household" is not a fundamental accounting unit, and not good for long-term analysis since the composition of a "household" changes so much over time. Extended vs. nuclear family structures, demographics of large vs. small families, larger populations of households before/after having children, etc.

The household composition plays into the Disposable Personal Income denominator in this plot too. A family just making ends meet on one income might seek additional disposable income from a second job.

But the lack of good data doesn't make the issue of maldistribution go away. It doesn't do the world much good if Gates & Buffett double their disposable income while the rest of us are eating rice & beans.

Nor does it do anyone much good if house prices go up (thus increasing the "net worth" numerator) even though the stock of housing remains unchanged. The benefit to society is from the physical stock, not the market pricing of that stock...

In my expectation of what your plot would look like if the data were broken out by quintiles, household net worth for most households would probably look flat during the bubble years (people were taking out larger loans rather than building equity), and then get destroyed when the housing market crashed. Since most households aren't participants in the stock market, the 5-year bull run hasn't helped them much. The relatively limp housing price recovery would be all most folks have to show for improving net worth for the past several years. And the price increase of the housing stock is largely balanced by the student debt bubble.