US household wealth takes big hit

Washington: Americans' wealth last summer suffered its biggest quarterly loss in more than two years as stocks, pension funds and homes lost value.

At the same time, corporations raised their cash stockpiles to record levels.

Household net worth fell 4 per cent to $57.4 trillion (Dh210.8 trillion) in the July-September quarter, according to a Federal Reserve report released Thursday. It was the sharpest drop since the tumultuous period after the September 2008 bankruptcy of investment bank Lehman Brothers. And it was the second straight quarterly fall.

"Going forward, you're going to see these ups and downs; the era of volatility is back," said Gregory Daco, principal US economist at IHS Global Insight. "There's greater uncertainty among consumers."

The value of Americans' stock portfolios fell 5.2 per cent last quarter. T. Rowe Price Associates estimates that two-thirds of that decline has been recouped in the October-December period. Much of that comes from continuing contributions to retirement accounts.

Home prices remain under pressure, diminishing home equity. Home equity is the biggest source of wealth for most Americans. Last quarter, home values slipped 0.6 per cent. Total values fell to $16.1 trillion, down from nearly $21 trillion in 2007, before the recession began.

Stockpiles

At the same time, corporations are amassing record cash stockpiles — $2.1 trillion at the end of September. Their reluctance to spend more of that money helps explain why job growth remains modest. The unemployment rate fell to 8.6 per cent in November. But it's hovered near 9 per cent for more than two years.

Roughly half of US households own stocks or stock mutual funds. Stock portfolios make up about 15 per cent 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 share of consumer spending. Eighty per cent of stocks belong to the richest 10 per cent of Americans.

The average balance in 401(k) plans managed by Fidelity Investments, the largest workplace savings plan provider, dropped nearly 12 per cent in the July-September period.

Added contributions

Thanks largely to workers' added contributions and company matches, about 92 per cent of people with 401(k) retirement savings plans now have more money than at the market top in October 2007, according to the Employee Benefit Research Institute in Washington.

As measured by the Dow Jones US Total Stock Market Index, stocks lost $2.6 trillion in the July-September quarter.

The Fed's quarterly report documents wealth, debt and savings for corporations, governments and households. It covers most financial transactions in the United States.