Wednesday, June 17, 2009

Flow of Funds

Federal Reserve's flow of funds report

Shorthand for the Flow of Funds Accounts of the United States, a quarterly survey published by the Federal Reserve that shows the movement of funds between households, businesses, the government, and financial institutions. It also shows whether debt levels increased or decreased and what the savings rate is. The report is released during the second week of March, June, September, and December.

Report here:

The U.S. Federal Reserve’s latest Flow of Funds report demonstrated another dismal deterioration for household balance sheets in the first quarter. The ratio of net worth to disposable income fell to its lowest level in 16 years.

“This massive wealth destruction should not come as a surprise given the performance of financial markets in recent quarters: people tend to forget that financial assets account for more than three-quarters of households’ net-worth,” National Bank Financial chief economist Stéfane Marion said in a note.

The hit to households’ balance sheet explains why the savings rate has surged from 0% to close to 6%, he noted, adding that the worst appears to be over.

Given the performance of financial markets so far in the second quarter, National Bank estimates that net worth improved markedly this quarter as all of the losses of the previous six months were recouped.

The historical relationship between net worth and savings suggests the need for an additional increase in the savings rate.

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