Written by Steven Hansen
The Federal Reserve data release (Z.1 Flow of Funds) – which provides insight into the finances of the average household – shows most Americans are worse off in the second quarter of 2024 than they were in the first quarter – and also are worse off than they were one year ago. This is notwithstanding that their average net worth increased from $152,985 one year ago to $163,797 in 2Q 2024.
Here is the view of households based on the 2020 US Census data:
- Roughly 1/3 of households are living paycheck-to-paycheck – and do not own any financial assets except for a bank account or car. [Note: According to a Bankrate survey conducted in 2024: 34% of workers reported living paycheck to paycheck. This figure rises to 43% for workers earning under $50,000 a year. A CNBC and SurveyMonkey poll from 2024 found: 65% of American adults said they were living paycheck to paycheck. Other surveys reported even higher percentages: A 2023 survey by Payroll.org indicated that 78% of Americans were living paycheck to paycheck. LendingClub reported that 61% of consumers were living paycheck to paycheck in April 2023.]
- Roughly the next 1/3 are Joe Sixpack households. They are homeowners – but own few stocks, bonds, or business ownership.
- Roughly the next 20% or so of the households are middle-man who own houses, stocks, bonds, or business ownership. Historically, these are the upper-middle class.
- The remaining +/-5% of the households are financially well off enough to be little affected by changing economic conditions.
The Z.1 Flow of Funds net worth data is not inflation-adjusted.
Food for thought [much of this data from the data in the Z-1 Flow of Funds]:
- It is interesting that consumer credit year-over-year growth was 1.9% according to Fed data (blue line on the graph below) but it is only 0.1% inflation-adjusted (red line on the graph below).
- According to Zillow, the average house value has appreciated 4.3% year-over-year (red line on the graph below) but the Federal Reserve says home equity values are up 9.8% (blue line on the graph below).
- Real disposable Personal Income’s year-over-year rate of growth is 1.1% at the end of Q2 2024.
- The rate of growth of financial assets is 7.1% (blue line on the graph below) and 3.9% inflation-adjusted (red line on the graph below).
- The year-over-year growth rate of the Z.1 Flow of Funds net worth data was 7.1% (blue line on the graph below) and 3.9% inflation-adjusted (red line on the graph below).
- Inflation is a major factor in net worth as the Consumer Price Index (inflation) was up 3.0% year-over-year (blue line on the graph below) at the end of Q2 2024.
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.
- It is inflation and population-adjusted.
- It is relative to one year ago – so the trend is the major influence on the index.
- Currently, Joe has a house that is increasing in value.
Joe Sixpack Index (blue line, left axis) shown against GDP (red line, right axis)
The Middle Man Index
The middle-class household with financial assets and real estate assets is Middle Man.
Unfortunately, retirement accounts are not separately detailed in the Z.1 reporting – but the graph below uses 25% of the change in Total Household Assets as a proxy for change in retirement accounts.
Total Household Assets (blue bars) vs Savings (red bars)
Adding the financial assets of Middle Man to the housing and compensation data used in the Joe Sixpack index, we see that Middle Man is also better off than one year ago even though some of his asset levels have declined.
Middle Man Index (blue line, left axis)
Caveats on this Post:
This is a lagging view of the average American’s situation. Having said this, Joe and Middle Man’s consumption is somewhat affected by how rich they feel – and it takes some time for the wealth effect to sink in.
Most of the data in this post is from “Flow of Funds Accounts of the United States” (Z.1) data released from the Federal Reserve which is released quarterly. Although EconCurrents can validate the data, in general, using other sources, micro-movements are difficult to validate. Importantly, the Z.1 data is a treasure chest of aggregated data across all sectors of the economy – and an invaluable tool in evaluating historical relationships.
Too many of us think we are smarter than Joe – and are above Joe in the social order. But many of us are Joe. Per Wikipedia:
John Q. Public (and several similar names; see the Variations section below) is a generic name in the United States to denote a hypothetical member of society deemed a “common man.” He is presumed to represent the randomly selected “man on the street.” Similar terms include John Q. Citizen and John Q. Taxpayer, or Jane Q. Public, Jane Q. Citizen, and Jane Q. Taxpayer for a woman. The name John Doe is used in a similar manner. For multiple people, Tom, Dick and Harry is often used. Roughly equivalent are the names Joe Six-pack, Joe Blow, the nowadays less popular Joe Doakes and Joe Shmoe ….
Note: The Z.1 data is based on averages, not medians. In other words, the rich are getting richer – and this influences the averages.
