Fed: Stock Plunge Erases $3.73 Trillion of Household Wealth

U.S. household wealth fell 3.5 percent at the end of 2018 amid a stock market rout and global volatility that threatened to weaken a near-decade old recovery, the Federal Reserve reported on Thursday.

In its quarterly Flow of Funds report, the Fed said household net worth for households and non-profit groups fell by $3.73 trillion, or 3.5 percent, to a one-year low of $104.3 trillion.

CNBC reported that Americans’ net worth fell at the highest level since the financial crisis, when the fourth quarter of 2008 saw a $3.8 trillion or 6 percent, tumble.  

The 4Q 2018 drop included a roughly 14 percent, or $3.8 trillion, fall in the value of stocks and mutual funds.

About $300 billion disappeared from the cash and liquid holdings of nonfinancial corporations amid the equity rout and tightening credit conditions.

The volatility that reared up towards the end of 2018 figured prominently in the Fed’s recent decision to put further rate hikes on hold as policymakers assessed whether the drop in wealth would translate into less spending and slower economic growth.

Meanwwhile, consumer debt rose at the slowest pace in more than a year amid weakness in housing.

Household debt rose at a 2.9 percent annual rate after 3.6 percent in the prior period, reflecting a slowdown in mortgages as home sales cooled, while growth in business debt cooled slightly to 3.8 percent.

Key Insights

  • While the fourth-quarter plunge in U.S. stocks wiped out $5.41 trillion in market value, equities have rallied since late December, which will likely support a rebound in wealth. But sustaining gains may be more difficult this year amid a broad cooling in real estate.
  • The value of equities directly and indirectly held by households and nonprofit groups fell $4.57 trillion during the quarter.
  • Excluding mortgages, consumer debt rose at a 6.2 percent pace, faster than the prior quarter, as Americans continued to take advantage of relatively low interest rates and borrow for large purchases such as cars to fuel overall gains in spending.
  • Total consumer debt rose to a record $15.6 trillion, as non-mortgage credit topped $4 trillion for the first time.
  • Companies had $4.05 trillion in liquid assets, which include cash, deposits, debt securities and stocks. That’s the lowest level in more than a year.
  • Owners’ equity as a share of real-estate holdings edged up to 60.1 percent from 59.8 percent.
  • This is the first time the ratio has exceeded 60 percent since mid-2002, based on previously released data.
  • Home equity loans fell to $533.1 billion, extending a decade of declines.

Material from Bloomberg and Reuters has been used in this report.