U.S. household wealth fell 4% in Q3 to US$57.4T, the largest quarterly loss since Q4 2008 and the second straight quarterly decline, as stocks, pension funds and homes lost value
December 8, 2011
– Americans' wealth last summer suffered its biggest quarterly loss in more than two years as stocks, pension funds and home values lost value.
At the same time, corporations increased their cash stockpiles to record levels.
Household net worth fell 4 percent to $57.4 trillion in the July-September quarter, according to a Federal Reserve report released Thursday. It was the sharpest drop since the October-December quarter of 2008 and was the second straight quarterly decline.
Household wealth, or net worth, is the value of assets like homes, bank accounts and stocks, minus debts like mortgages and credit cards.
The value of Americans' stock portfolios fell 5.2 percent last quarter. Home values dropped 0.6 percent.
Lower net worth can hurt the economy. When people feel poorer, they spend less. That slows growth. Businesses typically then cut back on hiring and expansion.
Corporations held a record $2.1 trillion in cash at the end of September.
Stock market declines have held back Americans' long, slow quest to recover losses from the 2008 financial meltdown.
The Standard & Poor's 500 stock index tumbled about 14 percent in the July-September period, ending a streak of four straight quarterly increases. The decline was driven by worries about Europe's debt crisis and the U.S. economy.
Stocks have rebounded about 10 percent since last quarter ended. But the S&P index is still down about 20 percent from its peak four years ago.
Roughly half of U.S. households own stocks or stock mutual funds. 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.
Most stock wealth is owned by the richest Americans, who also account for a disproportionate amount of consumer spending. Eighty percent of stocks belong to the richest 10 percent of Americans. And the richest 20 percent represent about 40 percent of consumer spending.
The average balance in company-run retirement plans managed by Fidelity Investments, the largest workplace savings plan provider, dropped nearly 12 percent in the July-September period.
Thanks largely to workers' added contributions and company matches, about 92 percent of people who have retirement savings plans now have more money in their accounts than at the market top in October 2007, according to the Employee Benefit Research Institute in Washington.
A rise in housing prices would help increase net worth by increasing home equity. But that still hasn't happened.
Home values have fallen sharply since the Great Recession began in December 2007, and people have less equity in their homes. Home values fell to $16.1 trillion in the July-September period, down from nearly $21 trillion in 2007, before the recession began.
Most economists expect prices to fall further, as banks resume foreclosing on millions of homes with past-due mortgages. Many foreclosures have been delayed because of a government investigation into mortgage lending practices.
When their declining wealth is combined with stagnant incomes, many Americans are less likely to spend. That's a drag on the economy, since consumer spending accounts for 70 percent of economic activity.
Average household income, adjusted for inflation, fell 6.4 percent last year from 2007, the year before the recession, according to the Census Bureau.
The report found that household debt declined at an annual rate of 1.25 percent from the previous quarter. That main factor was a decline in mortgage debt, which has fallen for 14 straight quarters.
But the drop is deceiving. Mortgage debt is declining mainly because so many Americans are defaulting on payments and losing their homes to foreclosure — not just because people are paying off loans.
The Fed's quarterly report documents wealth, debt and savings for corporations, governments and households. It covers most of the financial transactions that take place in the United States.
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