In the third quarter, total U.S. household assets climbed to $112.4 trillion. This was a gain of $1.9 trillion from the previous quarter, and it was an increase of 7 percent from the same quarter a year ago.
It should come as no surprise that the largest year-over-year increases (in percentage terms) came in the value of stocks and mutual funds, up 17 percent and 14 percent, respectively. The total value of housing registered a solid increase of 7 percent.
Total household liabilities in the third quarter escalated to $15.4 trillion. This represented a rise of $200 billion from the previous quarter, and it was 3 percent higher when compared with last year.
Some notable changes in liabilities were that consumer credit outstanding escalated by nearly 6 percent and home mortgages expanded by 3 percent over last year.
Subtracting the liabilities from the assets results in a total net worth for U.S. households of $96.9 trillion in the third quarter. This was $1.7 trillion higher than it was in the second quarter this year, and it represented a robust gain of 8 percent when compared with the third quarter in 2016.
My short-term takeaway is that many U.S. households are in excellent financial shape. Unless the stock market tanks before the end of the year, there will be another salubrious gain in household wealth in the fourth quarter. The recent trend in housing prices is also supportive of continued strong growth in total wealth. This will provide a substantial tailwind to consumer spending in 2018 due to a phenomenon that economists have dubbed the wealth effect.
The U.S. economy is exceptional in its ability to generate wealth, and this will be a positive factor for the upward trend that I am forecasting in the spending data in 2018. However, the most important driver of consumer spending growth is not rising wealth, but rather rising wages and incomes.
This brings me to my long-term takeaway from this data, which is that this economy needs to do better at wealth distribution. The gains in the wage data are not nearly as vigorous as in the wealth data. The latest figures indicate that wage growth is accelerating, but it has yet to achieve a sustained, year-over-year pace of 3 percent. Because of this sluggish wage growth, it took until last year for the median household income in the United States to get back to the level it was at in 2000.
Many analysts and politicians argue that the trend of rising wealth disparity is the biggest problem currently confronting America, and I agree. Their solution to this problem is almost universally some type of federal or state government program of taxation and redistribution. Here is where I part company with them: I strongly disagree with proposed remedies that require large government programs or taxes.
Nevertheless, we can and must do better, but it will require greater effort from many of us. I sense there is a holiday message and New Year's resolution for me in all of this.