I was paging through the most recent economic report from Piper Jaffray when I came upon the above chart. It graphs the year-to-year change in American household net worth compiled by statisticians at the Federal Reserve. If that chart doesn't make you ill, then wow!
As grim as the picture looks, it's actually a lot worse. Piper explains:
"Americans' personal net worth declined 11% Y/Y from the end of 3Q07 to the end of 3Q08... the largest (year-to-year) decline in 56 years for which the agency has data available."
And we all know how great things have been since the third quarter finished.
Another nugget to chew on:
"Our analysis found a 0.5 correlation between household net worth (Federal Reserve Flow of Funds Accounts) and personal consumption expenditures (Bureau of Economic Analysis) 2 quarters later. Stated differently, a rise or fall in Americans' net worth has historically had a meaningful and lingering impact on future consumer spending. Given the significant recent declines in wealth, we expect this to continue to be a headwind to consumer spending."
Little wonder then that Piper chose to title its report: "Can't Yet See The Light At The End of the Consumer Spending Recession Tunnel." How this will affect purveyors of pricey consumer electronics is up for debate. As is their wont, tech industry spokesmen and company pitchmen poo-poo this as unnecessarily Malthusian gloominess. Customers will always seek out value and good technologies will always find buyers. That's true up to a point. When you're out of work, other needs are more pressing than shopping for the latest smart phone.
However, I did manage to find at least one silver lining. Deflation may be doing a number on home prices, but it turns out inflation-adjusted average earnings actually increased due to a months'-long drop in consumer prices.