June 7 (Bloomberg) -- Household wealth in the U.S. climbed in the first quarter by the most in seven years, bolstered by a jump in stock prices and more stable home values.
Net worth for households and non-profit groups increased by $2.83 trillion from January through March, the biggest gain since the last three months of 2004, to $62.9 trillion, the Federal Reserve said today in its flow of funds report from Washington.
The jump in wealth reflected the first-quarter’s 12 percent surge in stock prices, the biggest in three years. The gain in equities has been cut by almost half this quarter, which combined with a cooling job market and smaller wage gains indicates it will take time for households to repair tattered finances.
“In the current environment, equity-market gains won’t be a stable source of wealth generation for households,” Paul Edelstein, director of financial economics at IHS Global Insight in Lexington, Massachusetts, said in a note to clients. “With interest rates at rock-bottom levels, home prices unlikely to advance strongly, and incomes growing anemically, there are few options right now for households to build their assets.”
The value of financial assets held by American households, including stocks and pension funds, increased by $2.29 trillion in the first quarter, according to today’s flow of funds data.
Since reaching a five-year low of $51.3 trillion in the first quarter of 2009, net worth has improved by $11.6 trillion. That leaves it $4.6 trillion below the record high of $67.5 trillion reached in the quarter ended September 2007, three months before the recession began.
Household real estate assets rose by $478.6 billion, the first increase since the second quarter of 2010 and the biggest since the first three months of 2006, today’s report showed.
Owners’ equity as a share of total household real-estate holdings increased to 40.7 percent last quarter from 38.8 percent.
The S&P 500 declined 6.6 percent from the end of the first quarter through yesterday as Europe’s debt crisis worsened and economies in emerging markets like China cooled. It climbed 0.6 percent to 1,322.8 as of 2:33 p.m. in New York today after China cut interest rates for the first time since 2008.
Fed Chairman Ben S. Bernanke said today the economy is at risk from the euro area’s sovereign debt crisis, as well as the prospect of tighter U.S. fiscal policy.
“The situation in Europe poses significant risks to the U.S. financial system and economy and must be monitored closely,” Bernanke said in testimony to the Joint Economic Committee in Washington. “As always, the Federal Reserve remains prepared to take action as needed to protect the U.S. financial system and economy in the event that financial stresses escalate.”
A sustained cooling in the U.S. labor market may also make it harder for households to shore up their finances. Payrolls rose 69,000 in May, less than half the median forecast in a Bloomberg News survey of economists, and following a revised 77,000 rise in April that was smaller than initially estimated, Labor Department figures showed June 1. The jobless rate climbed to 8.2 percent from 8.1 percent.
Today’s Fed report showed businesses had a record $1.74 trillion in cash and other liquid assets at the end of the first quarter, up from $1.72 trillion in the prior three months. The fourth-quarter figure was revised down from a prior estimate of $2.23 trillion, reflecting a benchmark revision for 2010 and changes in methodology for 2011.
Household debt dropped at a 0.4 percent annual rate last quarter, extending declines that began in the second quarter of 2008, today’s report showed. Mortgage borrowing decreased at a 2.9 percent pace. Other forms of consumer credit, including auto and student loans, increased at a 5.8 percent pace.
Total non-financial debt climbed at a 4.7 percent annual pace last quarter, led by a 12 percent increase by the federal government and a 5.2 percent gain among businesses. State and local government borrowing dropped at a 1.8 percent pace.
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