American households lost about $6.8 trillion in wealth over the first three quarters of 2022 as the stock market SPX, +1.43% DJIA, +1.58% COMP, +1.26% shed more than 25% of its value, the Federal Reserve reported Friday in the government’s quarterly financial accounts.
Nominal net worth fell 4.6% to $143.3 trillion, as the market value of assets fell by $6 trillion and liabilities rose by about $900 billion. Households’ balance sheets -assets minus liabilities—were propped up by a 10% increase in home equity, which is the greatest source of wealth for most American families.
But the loss in real wealth from January through September was about twice as large as the nominal loss — $13.5 trillion in current dollars—after accounting for the rapid inflation experienced this year. Inflation makes both debts and liabilities worth less in terms of purchasing power.
The 8.6% drop in real wealth over three quarters is the second-fastest decline on record (the data series begins in 1959). The only greater drop was following the financial crisis of 2008-09. (The wealth lost during the Great Depression of the 1930s would likely hold the record if we had the data.)Warning signs are also flashing as household debt has awakened, like Rip Van Winkle, after a 10-year nap. Following a decade of no growth in debt in inflation-adjusted terms, real household debt grew at a 4.3% annual rate in the third quarter, the fastest growth since 2007.
Consumers are taking on debt or dipping into their savings to maintain their living standards. By one measure highlighted in this Fed report, the personal savings rate has fallen to 3.7% of disposable income, after averaging more than 10% for the past 10 years.
