Net worth for households and non-profit groups increased by $1.72 trillion from July through September, or 2.7 percent from the previous three months, to $64.8 trillion, the Federal Reserve said today from Washington in its flow of funds report.
A recovery in household wealth, which plunged in the wake of the recession, may put more Americans in the mood to spend during the holiday-shopping season and give the world’s largest economy a lift. Net worth is still below its pre-recession peak, one reason the Federal Reserve is considering additional actions to spur expansion.
“Households have gotten themselves into much, much better financial shape,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York. “The ability of consumers to weather a shock is higher because buying power has increased. There’s no question that rising home prices are really helping to underpin buying power.”
The value of financial assets owned by American households, including stocks and pension fund holdings, increased by $1.3 trillion in the third quarter, today’s Fed report showed.
More than $800 billion was added to U.S. equity values last quarter. The Standard & Poor’s 500 Index advanced 5.8 percent from July through September. The index has decreased since, falling 2.2 percent through yesterday as investors waited to see whether lawmakers will resolve the spending cuts and tax increases in place for next year. The 500 Index was little changed today as European Central Bank President Mario Draghi said weak activity is expected to continue.
Household real estate assets rose by $301 billion, according to the flow of funds data. Owners’ equity as a share of total household real-estate holdings climbed to 44.8 percent last quarter from 43.4 percent.
Multiple measures show U.S. home values are on the path toward recovery. CoreLogic Inc. said last month that single- family home prices climbed 7.6 percent in the third quarter from a year earlier. Home values in the third quarter increased 3.6 percent from the same period in 2011, the biggest gain in two years, according to S&P/Case-Shiller data.
Still, Federal Reserve officials are weighing whether to expand record stimulus to increase wealth and promote economic growth. A “number” of central bankers said at their policy meeting in October that the Fed next year may need to expand its monthly purchases of bonds, according to the minutes of the Federal Open Market Committee’s Oct. 23-24 gathering.
Treasury purchases are “associated with increases in stock prices, which in turn can have wealth effects on consumption and investment,” Federal Reserve Governor Jeremy Stein said during a Nov. 30 speech. The FOMC meets again next week.
Today’s report showed household debt decreased at a 2 percent annual rate from July to September, the 16th decline in the past 18 quarters. Mortgage borrowing fell at a 3 percent pace. Other forms of consumer credit, including auto and student loans, advanced at a 4.3 percent pace.
Total non-financial debt increased at a 2.4 percent annual pace last quarter, led by a 6.2 percent advance by the federal government and a 4.4 percent gain among businesses. State and local government borrowing was little changed.
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