February 28, 2024

Household Net Worth Falls 0.3% in Quarter

WASHINGTON (AP) — Americans’ wealth declined this spring for the first time in a year, as stocks and homes fell in value, a Federal Reserve report said Friday. At the same time, corporations increased the size of their cash stockpiles.

The combination could slow an already weak economy because it implies that families have less to spend and businesses are reluctant to expand.

Household net worth dropped 0.3 percent to $58.5 trillion in the April-June quarter from the previous period, according to the Federal Reserve’s Flow of Funds report. The decline followed three straight quarterly increases.

The value of Americans’ stock portfolios fell 0.5 percent in the second quarter. Home values dropped 0.4 percent.

Corporations held a record $2 trillion in cash at the end of June, an increase of 4.5 percent.

Net worth is expected to fall even further in the current quarter because stocks plunged in late July and early August.

“August put a big dent in whatever confidence consumers had left,” said Greg McBride, senior financial analyst at Bankrate.com. That’s largely why retail sales were flat last month, he added.

Over all, household wealth, which mostly consists of home equity, stock portfolios, and other savings, has risen 15 percent since the recession officially ended in June 2009.

The increase is almost entirely the result of one of the fastest bull markets in history. Stocks began to recover in the spring of 2009 and had doubled in value by April of this year, as measured by the S. P. 500 index.

But Americans’ wealth has taken a hit since the second quarter, the period covered by the Fed report. The S. P. index has tumbled 11 percent since its April 29 peak, and 8 percent since the end of the quarter. That likely means an even larger drop in household net worth in the July-September quarter.

Stock portfolios make up about 15 percent of Americans’ wealth. That’s less than housing but ahead of bank deposits, according to the Fed’s report.

The likely drop in wealth comes at the same time that incomes are stagnating, particularly for middle-income households. Average household income, adjust for inflation, fell 6.4 percent last year from 2007, the year before the recession, the Census Bureau said earlier this week.

Americans also have less equity in their homes. The average homeowner has just 38.6 percent equity, down from 61 percent a decade ago.

The report found household debt declined at an annual rate of 0.6 percent from the previous quarter, helped by a big decline in mortgage debt, which has fallen for nine straight quarters.

But the decline is deceiving. Mortgage debt is coming down because so many Americans are defaulting and losing their homes to foreclosure, not just because people are paying off loans.

Article source: http://feeds.nytimes.com/click.phdo?i=2bb20526f23ff28711accb85ca2e4128

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