House­holds still wealthy

Fall in as­sets not yet a ma­jor worry

Finweek English Edition - - Economic Trends & Analysis - GRETA STEYN gre­tas@fin­week.co.za

HOUSE­HOLD AS­SETS in the United States had fallen a mas­sive US$6,66 tril­lion by third quar­ter 2008 from a record level of $77,7 tril­lion reached in third quar­ter 2007, fig­ures re­leased by the US Fed­eral Re­serve show.

How­ever, Stan­lib econ­o­mist Kevin Lings says US con­sumers re­main wealthy on a net ba­sis (that is, ex­clud­ing debt). He says their net worth to­talled $56,5 tril­lion at the end of third quar­ter 2008. That was $7 tril­lion be­low the all-time high achieved in third quar­ter 2007. De­spite that de­cline Lings says the net worth of the US con­sumer equates to a re­spectable 529% of dis­pos­able in­come – that is, 5,29 times an­nual in­come af­ter tax.

“That ac­tu­ally means the av­er­age US con­sumer is still ex­tremely wealthy, de­spite the high level of debt and fall­ing as­set prices. The long-term av­er­age ra­tio (since 1960) of net wealth to dis­pos­able in­come has been 490% – which im­plies that, on av­er­age, US con­sumers are still wealth­ier now than dur­ing most of the past 50 years.”

The Fed fig­ures also showed con­sumers are start­ing to re­duce debt lev­els. Con­sumer debt fell by $7,9bn in Novem­ber last year.

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