What Are Flow of Funds (FOF)?
Let me explain flow of funds (FOF) directly: these are financial accounts that track the net inflows and outflows of money to and from various sectors of a national economy. You should know that macroeconomic data from these accounts is collected and analyzed by a country's central bank. In the United States, the Federal Reserve Bank releases this data about 10 weeks after each quarter ends.
Just to clarify, don't confuse this with 'fund flows,' which refers to assets moving in and out of mutual funds, like between equity and fixed income options.
Key Takeaways
Here's what you need to grasp: flow of funds (FOF) are national financial accounts that track money movement among industries or sectors of the economy. The central bank collects and disseminates figures on the scale and scope of these flows for economic analysis. You can use this FOF analysis to measure economic activity, predict GDP changes, and help inform fiscal and monetary policy.
Understanding Flow of Funds Accounts
I want you to understand that FOF accounts serve primarily as an economy-wide performance indicator. You can compare data from these accounts to prior periods to analyze the financial strength of the economy at a given time and forecast its future direction. Governments also use them to formulate monetary and fiscal policy.
These accounts employ double-entry bookkeeping to track changes in assets and liabilities across all economic sectors: households, nonprofit organizations, corporations, farms, the government (federal, state, and local), and the foreign sector. They cover a wide range of financial instruments, including Treasury assets, American deposits abroad, savings deposits, money market funds, pension funds, corporate equities and bonds, mutual fund shares, mortgages, and consumer credits, to name a few.
The Fed's annual flow of funds data goes back to 1945, with quarterly data starting from 1952. This provides a detailed picture of how the size and composition of the U.S. economy have evolved since World War II.
Flow of Funds Data
The Fed releases reports on U.S. financial accounts quarterly, including flow of funds data. Labeled as Z.1, this release shows assets and liabilities for each economic sector at the end of the period. It details how each sector acts as a source or use of funds, includes time series on outstanding debt per sector, derives national net wealth by asset, and distributes gross domestic product (GDP).
Detailed statements in each account reveal how net capital shifts to or from various sectors, giving you a granular view of fund movements within the economy and across its borders.
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