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By Jason Stipp and Robert Johnson, CFA | 06-11-2013 04:00 PM

Johnson: Consumers Feeling a Little Better

Household net worth is another data point to eclipse precrisis levels and points to further increases in spending despite sluggish income growth, says Morningstar's Bob Johnson.

Jason Stipp: I'm Jason Stipp for Morningstar. Two big drivers behind consumer spending are consumers' current incomes and consumers' assets. We got some data on the former of those. Morningstar's Bob Johnson is here to give his take on consumers' net worth and what that might mean for consumer spending in the future.

Thanks for joining me, Bob.

Bob Johnson: Nice to be here.

Stipp: We got a report on consumer net worth last week, and it hit an important milestone that we've been waiting for since the 2008 downturn.

Johnson: Yeah. The net worth number, the raw single-point number at $70 trillion, that's trillion with a T, and that compared to $68 trillion in 2007 when we last hit a peak of consumer assets. So, that was a big landmark. We like to talk about landmark. We talked about it when we crossed the gross domestic product landmark, which we did a year or so ago in terms of exceeding past highs. Employment, we're not near there yet. We're getting very close on industrial production. So, this is another important economic milestone that we've crossed over to recover what we've lost in the recession.

Stipp: Break down the components of the net worth calculation. What's behind it, and what is it measuring exactly?

Johnson: Yeah. Net worth is a real fancy term. All it means is assets. It's everything you own, and you take away what you owe against it, such as your mortgages and so forth. And that's all the number is, so there is nothing really complicated about it. The asset side of the house is made up of real estate at about 25% and other hard assets are at about 6%. You've got bonds and bank assets at maybe of 20% of your assets and the same 20% for mutual funds and equities. Then the other 30% is a big amalgam of long-term stuff; it's really kind of hard to tap. It's your pension assets, your life insurance assets, and your small businesses that you might own.

Stipp: It's important to point out that we've come back a long way, as well. So, you mentioned that $68 trillion in 2007, and then we saw a big dip in net worth during the financial downturn. It was kind of a double whammy with the economy and the stock market losses.

Johnson: It went down 32%. It went into the mid-50s in terms of trillions of dollars. So, the consumer really took quite a hit in terms of their balance sheets. Again, if you think housing is 25% of the number, that's a big deal. And mutual funds and equities are another 20%; those are really pretty volatile things. And that's what kind of moves this number around.

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