Household Worth in U.S. Fell in Second Quarter as Stocks Dropped

Household wealth in the U.S. dropped from April through June as stocks prices declined, overshadowing a second consecutive gain in home prices.

Net worth for households and non-profit groups decreased by $322 billion in the second quarter, or 0.5 percent from the previous three months, to $62.7 trillion, the Federal Reserve said today in its flow of funds report from Washington. The value of financial assets fell by $742.5 billion, while real estate values climbed by $381.7 billion.

The end of the housing slump paired with the recent rebound in stocks has the potential to bolster consumer confidence and spending, which accounts for 70 percent of the economy. Net worth remains below its pre-recession peak, one reason the Federal Reserve pledged last week to take additional actions to spur expansion.

“When people see their assets go up in value, they are more prone to spending,” Yelena Shulyatyeva, a U.S. economist at BNP Paribas in New York, said before the report. “Growth in consumer spending has been really tepid. Hopefully the new monetary policy initiative will help on that front through increasing stock values and housing prices.”

The value of financial assets, including stocks and pension fund holdings, owned by American households decreased to $51.9 trillion in the second quarter from $52.7 trillion, today’s Fed report showed.

The Standard & Poor’s 500 Index declined 3.3 percent last quarter. More than $1 trillion was erased from U.S. equity values from April through June on concern about a worsening of Europe’s debt crisis and a global slowdown. The index has since gained 7 percent through yesterday, buoyed by the Fed’s efforts to spur growth.

Shares Fall

The S&P 500 Index (SPX) dropped 0.2 percent to 1,457.7 as of 11:55 a.m. today as data from China to Japan and Europe increased concern that a global economic slowdown is worsening.

Household real estate assets increased to $19.1 trillion from $18.7 trillion, according to the flow of funds data. Owners’ equity as a share of total household real-estate holdings improved to 43.1 percent last quarter from 41.6 percent.

Multiple measures show U.S. home values have begun to recover. CoreLogic Inc. said last week that single-family home prices climbed 3.8 percent in July from a year earlier, the biggest 12-month gain since August 2006. Prices in the second quarter increased 2.2 percent from the previous three months, the best performance since the fourth quarter of 2005, according to S&P/Case-Shiller data.

Fed Action

To make economic growth proceed at a faster pace by shoring up household wealth, the Fed announced on Sept. 13 it would keep interest rates near zero until at least mid-2015 and purchase $40 billion a month in mortgage debt until the labor market improved. Unemployment has exceeded 8 percent for 43 months.

“We’re trying to create more employment,” Fed Chairman Ben S. Bernanke said during a press conference following the bank’s announcement. “The tools we have involve affecting financial asset prices. If people feel that their financial situation is better because their 401(k) looks better or for whatever reason -- their house is worth more -- they’re more willing to go out and spend. That’s going to provide the demand that firms need in order to be willing to hire and to invest.”

Household debt climbed at a 1.2 percent annual rate from April to June after dropping at a 0.9 pace in the first three months of the year, today’s report showed. Mortgage borrowing decreased at a 2.1 percent pace. Other forms of consumer credit, including auto and student loans, increased at a 6.2 percent pace, the most since the end of 2007.

Total non-financial debt grew at a 5 percent annual pace last quarter, led by an 11 percent increase by the federal government and a 4.9 percent gain among businesses. State and local government borrowing advanced at a 0.8 percent pace.

To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net

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

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