The recently released flow of funds data for the first quarter of 2016 from the Federal Reserve (Fed) showed that household assets (houses, cars, computers, mutual funds, stocks, bonds, insurance policies, pensions, cash, etc.) exceeded household liabilities (mortgages, car loans, credit cards, etc.) by a record $88 trillion. This difference, known as household net worth, is now $20 trillion above the pre-Great Recession peak of $67 trillion, and $30 trillion above the Great Recession low of around $56 trillion. Rising equity prices, rising home prices, a rally in bonds, and elevated cash levels have boosted assets to $101 trillion, a 50% increase from the Great Recession lows; while household liability levels are still not back to their 2008 peak.

However, after shedding debt in the first few years of the economic recovery, household debt levels have moved steadily higher in the past four years. While the increase has been modest thus far (debt levels have moved up from a low of around $13.5 trillion in mid-2012 to $14.5 trillion in the first quarter of 2016), rising debt levels and stagnant growth in housing, equity, or other asset prices would be a sign that consumers (who account for about two-thirds of economic activity) may be getting stressed out again. But for now, the backdrop of an improving labor market, low interest rates, low inflation, and an all-time high household net worth provides plenty of support for the consumer, and suggests that the economic expansion, even as it turns seven years old later this month, remains intact.

IMPORTANT DISCLOSURES

The economic forecasts set forth in the presentation may not develop as predicted.

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security.

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