On a seasonally adjusted basis, federal debt growth fell to an annual rate of 5 percent in the third quarter, less than half its pace earlier this year. By contrast, nonfederal debt expanded at an 8 percent annual rate in the third quarter, up from a 6-1/4 percent pace in the previous quarter. The acceleration in nonfederal debt last quarter was broadly distributed across households, nonfinancial businesses, and state and local governments.
Household debt expanded at an annual rate of 9 percent in the third quarter, as mortgage debt grew at an 11-1/4 percent pace and consumer credit rose 6 percent. Debt of nonfinancial businesses increased at a 5 percent annual rate in the third quarter, somewhat faster than in the previous quarter. Among the components of nonfinancial business borrowing, commercial mortgages increased substantially in the third quarter, and commercial paper outstanding and bank loans continued to expand.

The seasonally adjusted level of domestic nonfinancial debt outstanding was $23.6 trillion at the end of the third quarter of 2004. Debt of nonfederal sectors was $19.3 trillion and federal debt held by the public was $4.3 trillion.

Growth of Domestic Nonfinancial Debt¹
Percentage changes; quarterly data are seasonally adjusted annual rates

This publication presents the flow of funds accounts for 2004:Q3.

Data revisions and other changes. The statistics in the attached tables reflect the use of new or revised source data. Most significant revisions appear in recent quarters; however, new source information resulted in changes to data for earlier periods. In this release, data for the private pension funds sector (tables F.119, L.119, F.119b, F.119c, L.119b, and L.119c) have been revised for the period 2000 forward to reflect statistics from the U.S. Internal Revenue Service/Department of Labor/Pension Benefit Guaranty Corporation Form 5500 filed for plan year 2000.

Explanatory notes for tables D.1, D.2, and D.3. Domestic debt comprises credit market funds borrowed by U.S. entities from both domestic and foreign sources, while foreign debt represents amounts borrowed by foreign financial and nonfinancial entities in U.S. markets only. Financial sectors consist of government-sponsored enterprises, agency- and GSE- backed mortgage pools, and private financial institutions. Credit market debt consists of debt securities, mortgages, bank loans, commercial paper, consumer credit, U.S. government loans, and other loans and advances; it excludes trade debt, loans for the purpose of carrying securities, and funds raised from equity sources.

Growth rates in table D.1 are calculated by dividing seasonally adjusted flows from table D.2 by seasonally adjusted levels at the end of the previous period from table D.3. Seasonally adjusted levels in flow of funds statistics are derived by carrying forward year-end levels by seasonally adjusted flows. Growth rates calculated from changes in unadjusted levels printed in table L.2 can differ from those in table D.1.

Relation of Flows to Outstandings. Estimates of financial assets and liabilities outstanding are linked to data on flows. However, figures on outstandings contain discontinuities or breaks in series that could affect analysis of particular relationships over time specifically, outstanding in the flow of funds accounts are related to the flows in the following way:

Outstanding t = Outstanding t-1+ Flow t+ Discontinuity t where "t" is the time period.

Discontinuities result from changes in valuation, breaks in source data, and changes in definitions. For most series, the value of the discontinuity is zero for nearly all time periods.

However, in a few instances, the discontinuity is nonzero for almost all time periods, or is quite large in a particular quarter, such as a period when there is a sharp increase or decrease in equity prices or a major break in source data.

The discontinuities in a series can distort estimated rates of growth in assets and liabilities between periods. In order to minimize these distortions, percentage changes in assets and liabilities in flow of funds releases should be calculated as:

Percentage change t = (Flow t / Outstanding t-1) * 100

Preliminary Estimates. Figures shown for the most recent quarter in these tables are based on preliminary and incomplete information. A summary list of the principal sources of information available when the latest quarter's data were compiled is provided in a table following this introduction. The distinction between "available" data and "missing" data is not between final and preliminary versions of data, but rather between those source estimates that are fully ready when the latest quarterly publication is compiled and those that are not yet completed. However, the items that are shown as available are, in general, also preliminary in the sense that they are subject to revision by source agencies.

Margins of Uncertainty. Flow of funds statistics are subject to uncertainties resulting from measurement errors in source data, incompatibilities among data from different sources, potential revisions in both financial and nonfinancial series, and incomplete data in parts of the accounts. The size of these uncertainties cannot be quantified in precise statistical terms, but allowance for them is explicitly made throughout the accounts by the inclusion of "discrepancies" for various sectors and instrument types. A discrepancy for a sector is the difference between its measured sources of funds and its measured uses of funds. For an instrument category, a discrepancy is the difference between measured funds borrowed through the financial instrument and measured funds lent through that instrument. The size of such discrepancies relative to the main asset or liability components is one indication of the quality of source data, especially on an annual basis. For quarterly data, differences in seasonal adjustment procedures for financial and nonfinancial components of the accounts sometimes result in discrepancies that cancel in annual data.

Availability of Data. Flow of funds statistics are updated about ten weeks following the end of a quarter. This publication - the Z.1 release - is available from the Board's Publications Services. Flow of funds data are also available electronically through the Internet at the following location:

http://www.federalreserve.gov/releases/Z1

M The Internet site also provides quarterly data beginning in 1952, organized in compressed files that correspond to the tables published in this release. There are files for quarterly data for seasonally adjusted flows, unadjusted flows, outstandings, balance sheets, and debt (tables D.1, D.2, and D.3).

A Guide to the Flow of Funds Accounts is available. The 1,200-page Guide, published in two volumes in January 2000, explains in detail how the U.S. financial accounts are prepared and the principles underlying the accounts. The Guide can be purchased for $20.00 from the Board's Publications Services.

Publications Services accepts orders accompanied by ks as well as credit card orders.

The Internet site for this release at the location shown above contains a link to an order form for the Guide that can be mailed or faxed to Publications Services. In addition, the Internet site includes a link to Guide's descriptions of the tables in the flow of s accounts.

Subscription Information. The Federal Reserve charges for subscriptions to all statistical releases. Inquiries for releases should be directed to:

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