April 18, 2024

U.S. Households’ Finances Regain Lost Ground

Without adjusting for inflation, the net worth of American households is now higher than before the recession struck five and a half years ago, the Federal Reserve said on Thursday.

Household net worth jumped by just over $3 trillion, or 4.5 percent, to $70.3 trillion in the first quarter of 2013, surpassing the $68.1 trillion reached in 2007.

After adjustment for inflation, total net worth still stands below the peak reached in mid-2007, said Dean Maki, chief United States economist at Barclays.

The encouraging report from the Fed comes amid other signs that Americans are feeling slightly better about the economy.

In a New York Times/CBS News poll conducted May 31 to June 4, 39 percent of respondents said that the recent condition of the economy was very or fairly good, the highest share saying this not only since President Obama took office but also since the recession officially began in December 2007.

About a third of respondents said that the economy was getting better, similar to what the trend had been in the previous six months. (Another 24 percent said that it was getting worse and 42 percent said the economy was staying about the same.)

Nearly half of respondents — 46 percent — rated the job market in their areas as very good or fairly good, with a third saying that they thought their local job markets would improve over the next year.

The poll has a margin of sampling error of plus or minus three percentage points.

Despite newfound optimism in some quarters, the economy continues to send mixed signals. Even as consumer spending remains healthy and the housing market rebounds, the labor market has been much slower to recover and many Americans at middle and lower income levels remain worse off than before the downturn.

The latest report on jobs will come Friday morning, when the Labor Department reports employment data for May. Month-to-month numbers have been bumpy this year, with the economy adding a robust 332,000 jobs in February, then slowing to a pace of 138,000 new positions in March and 165,000 in April.

Economists are looking for the report to estimate that the economy created roughly 165,000 jobs in May, with the unemployment rate holding steady at 7.5 percent. On Thursday, the government reported that initial claims for unemployment benefits fell by 11,000, to 346,000, just under the four-week moving average of 352,500.

Trading on financial markets was volatile as investors readied positions ahead of the Labor Department report.

After spending much of the day in negative territory, the stock market staged a late-day rally. The Dow Jones industrial average rose 80.03 points to 15,040.62 and the Standard Poor’s 500-stock index inched up 13.66, to 1,622.56. The Nasdaq composite index increased by 22.58, to 3,424.05.

The bond market rose modestly, with the yield on 10-year Treasury bonds falling slightly to 2.08 percent.

In the currency markets, the dollar fell sharply against the yen and the euro on Thursday, and continued to fall Friday morning. Currency traders will be watching the jobs data on Friday for signs about the economy’s underlying strength and the Fed’s next move on monetary policy.

The lackluster gains in jobs and income for most Americans stand in contrast to the rally on Wall Street and increase in home prices so far this year.

In the first quarter of 2013, real estate holdings accounted for a $784 billion gain in household net worth, while the value of corporate shares and mutual funds increased by nearly $1.5 trillion, the Fed said.

The stock market gains primarily benefit a fairly narrow stratum of American society, Mr. Maki noted, with the top 20 percent of earners holding 80 percent of stocks.

“That group always accrues the bulk of the benefits from a rising stock market,” he said.

The Federal Reserve report also showed that Americans remained cautious, continuing to reduce debt levels and strengthen their personal balance sheets. Household borrowing sank at an annual rate of 0.6 percent in the first quarter, with mortgage debt declining by $53.2 billion.

The implosion of the housing sector, and the stock market tumble in 2008 and early 2009 took a huge toll on the net worth of American families. Between 2007 and 2008, household net worth dropped by nearly $13 trillion, a decline of nearly 20 percent.

While unemployment remains high by historical standards at 7.5 percent, the economy has shown signs of life lately. Consumer spending has held up this year, despite fears that an increase in payroll taxes and cutbacks in government spending might cool the economy.

The stock market has surged in 2013 in anticipation of better economic growth and expectations that the Federal Reserve will not pull back on its efforts to stimulate the economy until evidence is much stronger that jobs are more plentiful and living standards are improving. But stocks have wavered in recent days on worries that the central bank will not keep pumping as much money into the financial system.

Catherine Rampell contributed reporting.

Article source: http://www.nytimes.com/2013/06/07/business/economy/us-households-finances-regain-lost-ground.html?partner=rss&emc=rss

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