Household Worth in U.S. Increases by $2.1 Trillion on Stock Gains, Saving
Household wealth in the U.S. climbed by $2.1 trillion in the fourth quarter of 2010 as share prices rose and families rebuilt finances tattered by the recession.
Net worth for households and non-profit groups increased at a 16.6 percent annual pace to $56.8 trillion after rising at a 9.1 percent rate in the previous three months, the Washington- based Federal Reserve said today in its Flow of Funds report. American households also cut debt for an 11th consecutive quarter.
“We’re continuing this slow, grinding process of working down the degree of leverage in the household sector,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut. “It was a big quarter for the stock market, so household net worth shot up, and that’s certainly a plus.”
The 10.2 percent increase in the Standard & Poor’s 500 Index last quarter helped boost household wealth that remains about $9 trillion below pre-recession levels. Declining home values and unemployment near 9 percent are prompting Americans to increase savings and cut debt, curbing spending now while building a foundation for future growth.
The value of corporate equities owned by American households increased by $1 trillion in the fourth quarter, today’s report showed, as the Fed’s planned purchases of $600 billion in Treasuries through June pushed investors into riskier assets.
The value of real estate held by households slid by $244 billion following the prior quarter’s $629 billion drop, marking the first back-to-back quarterly declines since early 2009, when the economy was still in a recession. The 18-month contraction that ended in June 2009 was the longest since the Great Depression, according to the National Bureau of Economic Research.
Home values may keep falling as unemployment causes foreclosures to mount. The S&P/Case-Shiller index of property values in 20 U.S. fell 2.4 percent in December from a year earlier, and 18 of 20 cities showed a year-over-year decline.
Owners’ equity as a share of total real-estate holdings fell to 38.5 percent last quarter from 39.1 percent in the prior three months.
Americans have cut debt and increased savings to cope with an unemployment rate that averaged 9.6 percent last year. The rate fell to 8.9 percent in February, the Labor Department said last week.
Consumer spending rose at a 4.1 percent annual pace in the fourth quarter, the most in four years, according to Commerce Department data. Economists surveyed by Bloomberg in February forecast spending growth of 3.15 percent in the first half of 2011.
A surge in gasoline prices caused by turmoil in the Middle East may prompt consumers to slow spending, paring economic growth. The average price of a gallon of regular gasoline at the pump rose to $3.53 yesterday, the highest since October 2008.
Economists raised their projections for growth this year after the Obama administration’s December agreement with Congressional Republicans on extending Bush-era tax cuts. The accord also included a break on payroll taxes, an extension of emergency unemployment benefits and corporate depreciation of 100 percent of investments in capital equipment this year.
Corporate profits have risen every quarter since the first three months of 2009 and were up 2.8 percent from July through September. Through March 8, 68 percent of S&P 500 companies reporting fourth-quarter earnings had positive surprises, according to Bloomberg data.
Today’s Fed report showed companies had $1.9 trillion in cash and other liquid assets at the end of the fourth quarter, a record.
Household credit fell at a 0.6 percent rate in the fourth quarter. Mortgage borrowing fell at a 1.3 percent pace, reflecting rising defaults and less lending, while other forms of consumer credit rose 2 percent.
Total borrowing by consumers, government agencies and businesses excluding financial firms increased at an annual rate of 5.1 percent last quarter, led by a 15 percent gain for the federal government. Borrowing by businesses increased 3.6 percent.
Lending to Small Companies
The Obama administration is seeking to boost lending to small companies.
The Small Business Lending Fund, passed by Congress in September, has begun accepting applications from banks for capital at subsidized rates as low as 1 percent if the banks expand lending to small companies. The capital, available only to banks with less than $10 billion in assets, could generate total new lending of as much as $300 billion, according to the Treasury Department.
“I think this will help some businesses in some regions, but is it the whole answer to our economic problems?” Greg Ohlendorf, president of First Community Bank and Trust in Beecher, Illinois, said last week. “No, it’s not. But it will help.”
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