The Federal Reserve data release (Z.1 Flow of Funds) for 4Q2015 – which provides insight into the finances of the average household – shows a modest improvement in average household net worth. Our modeled “Joe Sixpack” – who owns a house and has a job, and essentially no other asset – is better off than he was last quarter. However, those with market exposure – will feel worse off.
You may ask why this analysis is important? It looks at the financial health of the consumer – and in a consumption based economy, it measures the dynamics affecting the consumer.
35% of Americans who own no home or have any other assets are no better off (living from paycheck to paycheck) – and consumption is based simply on income. It is obvious that the median household is not as well off as before the Great Recession.
As the US Census does not update the above graph in real time, we must rely on Sentier Research’s Household Income Index [click here to read analysis of the current situation]. Here is the graph from their analysis which shows that REAL household income is on an improving trend line.
First, from the Z.1 Flow of Funds report, what was shown about Household Net Worth and Growth of Domestic Nonfinancial Debt. Cumulative Household net worth grew, while cumulative household debt growth also grew.
The Joe Sixpack Index
The Joe Sixpack Index is a composite index of home prices and wage income (again – Joe owns a house with a mortgage, has a job, and no other assets). This index was designed to measure how rich Joe should feel. The theory is that the richer Joe feels, the more Joe will spend.
