Consumer and Corporate Health
By Megan Horneman. © Verdence Capital Advisors
- Flow of funds report goes unnoticed with sweltering inflation data.
- Health of corporations, consumers and the government questioned after disappointing 1Q22.
- Household net worth falls but underlying balance sheet strong.
- Corporations net worth rises.
- The second half of the year will likely be choppy
While most investors were focusing on the disappointing news on inflation, there was another important data release that may have gone unnoticed. On a quarterly basis, the Federal Reserve releases a report called the Financial Accounts of the U.S. This report analyzes the health of the U.S. by looking at household wealth, the health of U.S. corporations and the U.S. Government. This detailed report looks at where funds are flowing, how liabilities are growing or contracting, and net worth and balance sheets across these three sectors of the economy. Below are some key takeaways from the two primary sectors.
Household Net Worth Falls
- Household net worth, which considers a household’s assets to its liabilities, fell for the first time since 1Q20 due to a drop in the value of the corporate equities and corporate bonds that households own.
- The value in real estate as well as owner’s equity in real estate rose to the highest level on record, allowing a household’s wealth in real estate to remain strong.
- Deposits, including savings and checking accounts, rose to a new record high ($18.5 trillion) in 1Q22.
Corporate Net Worth Rises
- Corporate net worth rose in 1Q22 to $30.1 trillion but it was the slowest quarterly gain since the pandemic (1Q20). Nonfinancial assets rose within the asset component.
- Corporations did increase traditional debt, but they saw strong demand for traditional loans.
- Corporate balance sheets saw two metrics change; Their debt/equity rose to a 12-month high and debt to net worth rose to a two-quarter high.
The Bottom Line: While this report is backward-looking, it is full of useful information on the health of America. Households and corporations are strong, for now. However, there are cracks emerging and if inflation does not moderate, these balance sheets will likely weaken.
This material was prepared by Verdence Capital Advisors, LLC (“VCA”). VCA believes the information and data in this document were obtained from sources considered reliable and correct and cannot guarantee either their accuracy or completeness. VCA has not independently verified third-party sourced information and data. Any projections, outlooks or assumptions should not be construed to be indicative of the actual events which will occur. These projections, market outlooks or estimates are subject to change without notice. This material is being provided for informational purposes only and is not intended to provide, and should not be relied upon for, investment, accounting, legal, or tax advice.
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By Megan Horneman