U.S. Household Worth Rose by $1.92 Trillion in Third Quarter

Household wealth in the U.S. increased from July through September as improvement in the home and equity markets boosted American balance sheets.

Net worth for households and non-profit groups rose by $1.92 trillion in the third quarter, or 2.6 percent from the previous three months, to $77.3 trillion, the Federal Reserve said today from Washington in its financial accounts report, previously known as the flow of funds survey.

Consumers have been cleaning up balance sheets for more than four years with the help of gains in employment, stock prices and home values. Further improvement in the labor market will be needed to bolster confidence and boost spending following its weakest gain in almost four years as households continue to repair finances.

“The recovery of wealth has not been uniform,” said Dana Saporta, a director in the U.S. economics research group at Credit Suisse in New York. “It still looks like wealth is concentrated in financial assets, which in turn are concentrated in a relatively small portion of all households.”

The value of financial assets, including stocks and pension fund holdings, held by American households increased by $1.5 trillion in the third quarter, according to today’s Fed report.

Wealth Effect

For that increase to boost total consumer spending the so-called wealth effect would need to kick in, said Saporta. Purchases by upper-income households who feel more confident as their wealth improves would lead to gains in hiring and boost the buying-power of more Americans.

The Standard & Poor’s 500 Index climbed 4.7 percent from June 28 to Sept. 30 in its third straight quarterly gain, following a 2.4 percent increase in the second quarter. The gauge was up 0.3 percent to 1,809.7 at 12:50 p.m. in New York.

A recovering housing market is also helping improve household wealth. The S&P/Case-Shiller national home-price index rose 11.2 percent in the third quarter from the same period in 2012, the biggest year-over-year advance since the first three months of 2006.

Household real-estate assets climbed by $428.5 billion, the data show. Owners’ equity as a share of total household real-estate holdings increased to 50.8 percent last quarter from 49.7 percent in the previous three months.

Household net worth is $8.23 trillion above its pre-recession peak of $69 trillion reached in the third quarter of 2007. It was $75.3 trillion in the three months ended June.

Cash Balances

Companies’ finances are also improving. The value of liquid assets on nonfinancial businesses’ balance sheets jumped by $114.5 billion to a record $1.93 trillion in the third quarter, according to today’s report. That was the biggest gain since the third quarter of 2009, at the start of the current expansion.

The Fed is attempting to maintain gains in household net worth by keeping an accommodative stance on monetary policy as it gauges improvement in the economy. Policy makers have signaled they may taper monthly bond purchases “in coming months” if the economy improves as anticipated, according to minutes released Nov. 20 from the Fed’s Open Market Committee meeting concluded Oct. 30.

Gains in employment and wages are also adding to American wealth. Payrolls grew by 203,000 in November following a revised 200,000 advance in October, while the unemployment rate dropped to 7 percent, the lowest in five years, Labor Department figures showed last week.

Rising Wages

Average hourly earnings increased by 0.2 percent to $24.15 in November from the prior month, and climbed 2 percent over the past 12 months. The average work week for all workers climbed six minutes to 34.5 hours last month.

The gains in household wealth have trickled through to the economy, with industries such from housing to autos seeing the benefits. Vehicle sales remain on pace for their best year since 2007, as General Motors Co. and Chrysler Group LLC led November gains that met or exceeded analysts’ estimates as dealers stepped up promotion of year-end offers.

That puts household purchases, which account for almost 70 percent of the economy, on firmer footing after growing at a 1.4 percent annualized rate in the third quarter, the weakest since the end of 2009.

Household debt increased at a 3 percent annual rate last quarter, today’s report showed. Mortgage borrowing climbed at a 0.9 percent pace, the first gain since the first quarter of 2009 and the biggest since more than five years. Other forms of consumer credit, including auto and student loans, rose at a 6 percent pace.

Total non-financial debt advanced at a 3.5 percent annual pace last quarter. Federal government obligations rose by 1.5 percent, while business borrowing climbed 7.5 percent. State and local government debt declined at a 3.9 percent pace, the first drop in almost a year.