Americans begin to regain their lost wealth

Washington: Americans regained more of their shrunken wealth last quarter, mainly because the healing economy boosted stock portfolios. But the gain was less than in the previous two quarters.

The Federal Reserve reported on Thursday that household net worth rose 1.3 per cent in the fourth quarter to $54.2 trillion (Dh199 trillion). It marked the third straight quarter of gains. Net worth had risen by a stronger 4.5 per cent in the second quarter of 2009 and by an even faster 5.5 per cent in the third quarter.

Vast losses

Net worth is the value of assets such as homes, chequing accounts and investments minus debts like mortgages and credit cards.

Even with the gain, Americans' net worth would have to rise an additional 21 per cent just to get back to its pre-recession peak of $65.9 trillion. That shows the vast loss of wealth people have suffered from the worst downturn since the 1930s.

Growth in stock portfolios delivered the biggest lift to net worth in the October-to-December period. The value of stocks rose by nearly 4 per cent to $7.7 trillion. Higher home prices helped a bit. The value of real-estate holdings edged up 0.2 per cent.

During the recession, which began in December 2007, household net worth plunged as low as $48.5 trillion in the first quarter of 2009. Stock holdings and home values nose-dived. As their net worth evaporated, Americans felt less inclined to spend.

For all of last year, consumer spending dropped 0.6 per cent. This year, as wealth, the economy and financial conditions slowly recover, consumer spending is projected to grow around 2.2 per cent, according to the National Association for Business Economics.

By contrast, in 1983, when the economy was recovering from the 1981-82 recession, consumer spending surged 5.7 per cent.

Unlike past rebounds led by ordinary shoppers, this one so far has been driven more by spending from businesses, foreigners and until it runs out government stimulus. Consumers have been spending more lately. But they remain cautious.

Consumers would need to see a prolonged pickup in their net worth to persuade them to ratchet up their spending, said Scott Hoyt, senior director of consumer economics at Moody's Economy.com.

"It would take a string of increases of a size that they believe can continue and that they can have faith it for consumers to really boost their spending," Hoyt said.