US Household Net Worth Snaps 6 Quarter Slump

US household net worth rose by $2 trillion in Q2, which is more than the annual GDP of Canada or any of the BRICs, but one (China) or the combined GDP of 6 euro zone members (Portugal, Finland, Ireland, Belgium, Greece and Austria). At $53.1 trillion, US household net worth is still a little more than $11 trillion off the peak recorded in Q3 07.

The recovery in the stock market in Q2 and the stabilization of house prices were behind the improvement in the household balance sheet. Given the nearly 16% rise in the S&P 500 thus far this quarter and continued stabilization of the housing market suggests that household net worth likely improved here in Q3 too.

Meanwhile, the Flow of Funds report shows that the deleveraging of the consumer is still evident as debt levels continue to be pared back. Corporate debt was also reduced. However, total borrowing in the US rose by 4.9% (at an annualized pace) as the household and corporate debt reduction was more than offset by the 28% increase in the federal government's debt and 8.3% increase in the debt of state and local governments. The savings by the household and business is being offset by the dissavings of the government. This means that through the second quarter, the deleveraging--reducing the debt level-- of the US as a whole--has not progressed very far.