Household Wealth in U.S. Rose by $1.2 Trillion in Third Quarter, Fed Says

Household wealth in the U.S. rose by $1.2 trillion in the third quarter as share prices jumped in response to an improving economy.

Net worth for households and non-profit groups increased at a 9.1 percent annual pace to $54.9 trillion after dropping at a 9.9 percent rate in the previous three months, according to the Federal Reserve’s Flow of Funds report issued today in Washington. American families also cut debt for a 10th consecutive quarter.

Rising wealth and falling debt are putting consumers further down the road toward improving their personal finances following the worst recession since the 1930s, one reason why spending has picked up. The report also showed that a drop in home prices limited the gain in net worth, indicating residential real estate remains a risk to the outlook.

“Households are still shoring up, cleaning up their balance sheets, getting to a level they’re more comfortable with and that’s an ongoing process,” said Julia Coronado, chief economist for North America at BNP Paribas in New York, who worked on the report as a Fed economist. “Housing has now become a headwind.”

The increase in net wealth fell short of making up for the second quarter’s $1.4 trillion loss. The Standard & Poor’s 500 Index rose 11 percent during the three months ended Sept. 30, after dropping 12 percent from April through June.

Fewer Claims

The number of workers filing first-time claims for unemployment insurance payments fell more than forecast last week, showing the labor market continues to improve, a report from the Labor Department also showed today. Applications for jobless benefits decreased to 421,000 from a revised 438,000 the prior week. The four-week moving average, a less-volatile measure, dropped to the lowest level in more than two years.

Stocks swung between gains and losses as Democratic opposition to President Barack Obama’s tax agreement with Republicans offset investor optimism over the job market. The S&P 500 rose 0.2 percent to 1,230.12 at 2:55 p.m. in New York.

The value of household holdings of corporate equities increased by $977.6 billion in the third quarter, today’s report showed. Real-estate holdings dropped by $747.4 billion, the biggest decline since the first three months of 2009, when the economy was still in a recession. The economic slump ended in June 2009.

Home Prices

Home values may keep falling in coming months as a jobless rate hovering near 10 percent causes foreclosures to mount. The S&P/Case-Shiller index of property values in 20 U.S. fell 0.8 percent in September from the prior month and 15 cities showed a year-over-year decline.

Owners’ equity as a share of their total real-estate holdings decreased to 38.8 percent last quarter from 40.8 percent in the second three months of the year. The measure reached a high of 59.7 percent at the height of the housing boom in 2005.

Americans have cut debt and increased savings as they cope with an unemployment rate that has stayed above 9 percent for almost two years. The jobless rate climbed to 9.8 percent in November, the Labor Department said last week. Companies added 50,000 positions to payrolls, the smallest increase in six months.

Outlook Improving

Economists have boosted their projections for growth next year amid evidence of improved consumer spending and sustained factory growth, as well as the Obama administration’s agreement with Congressional Republicans on extending Bush-era tax cuts. The proposed deal, announced Dec. 6, also includes a break on payroll taxes and an extension of emergency unemployment benefits for another year.

Consumer spending rose at a 2.8 percent annual rate in the third quarter, the fastest pace of growth in almost four years, according to Commerce Department data. Corporate profits have risen every quarter since the first three months of 2009 and were up 2.8 percent from July through September.

Today’s Fed report showed companies had $1.93 trillion in cash and other liquid assets at the end of the third quarter, a record. Companies spent more on plant and equipment in the third quarter. The so-called financing gap -- the amount of money used for capital spending less what companies raised internally --was a $127.9 billion, the most in at least the past two years.

Less Debt

Consumer debt dropped at a 1.7 percent annual pace in the third quarter, the smallest decrease since the first three months of 2009, today’s report showed. Mortgage borrowing fell at a 2.5 percent pace, while other forms of consumer credit decreased 1.5 percent.

Total borrowing by consumers, businesses and government agencies excluding financial firms increased at an annual rate of 4.2 percent last quarter, led by a 16 percent gain for the federal government. Borrowing by businesses increased 1.7 percent.

Banks including Bank of America Corp. and Citigroup Inc. have said they’re increasing their focus on small business lending. Citigroup said Nov. 15 it planned to hire 200 bankers by the end of 2011 to court businesses with less than $20 million of annual sales.

To contact the report on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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