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Americans’ wealth fell in spring as stocks tumbled

Americans' long journey to regain the wealth they lost in the recession is stalled.
/ Source: The Associated Press

Americans' long journey to regain the wealth they lost in the recession is stalled.

Households failed even to run in place during the April-June quarter as sinking stock prices eroded wealth. Stocks have since recovered about two-thirds of those losses. But based on last quarter's data, household net worth would have to surge 23 percent to reach its pre-recession peak.

Net worth — the value of assets like homes and investments, minus debts like mortgages and credit cards — fell 2.7 percent last quarter, or $1.5 trillion, the Federal Reserve said Friday. It now stands at $53.5 trillion.

That's above the bottom hit during the recession, $48.8 trillion in the first quarter of 2009. But it's far below the pre-recession peak in wealth of $65.8 trillion.

The drop from April to June was the first quarterly decline in Americans' wealth since early 2009. Before then, net worth had risen slowly for four straight quarters.

Economists generally think household wealth has ticked up in the July-to-September quarter so far, because of higher stock prices. Yet given last quarter's setback and expectations of scant gains ahead, some economists have pushed back their forecast for when Americans will regain all their lost wealth: Not until the middle of this decade.

Their stagnant wealth will likely keep Americans from spending freely — and the struggling economy from picking up strength. Consumers tend to spend according to how wealthy they feel. And their spending accounts for about 70 percent of the economy. In the meantime, people are saving more and paring debt, Friday's data showed.

The decline in net worth from April to June amounted to an average drop of $12,941 per household. Average household wealth now amounts to $455,173. That's up from $415,185 during the recession. But it's down from a peak of $563,438 in 2007.

One reason why economists foresee only slight gains in wealth is they expect real-estate values to stay weak. Residential real-estate accounts for 32 percent of net worth; individual stocks make up 13 percent. The balance includes retirement accounts, taxable mutual funds, bank accounts, bonds and possessions such as cars and jewelry.

During the recession, sinking home equity and stock prices made shoppers skittish. More than a year after the recession is thought to have ended, the housing and stock markets remain fragile. That's why most Americans aren't spending as much as they typically do after recessions.

Consumer spending grew at an annual rate of just 2 percent last quarter, about the same pace as in the first three months of this year. Most economists think Americans will spend at about the same pace, or only slightly better, in the current quarter.

By contrast, after the 1981-82 recession, consumer spending averaged a robust 6.5 percent pace during 1983.

"Consumer spending is going to show only stunted growth this year because the wherewithal to spend — jobs, income, wealth — are only inching higher," said Ken Mayland, president of ClearView Economics.

Another reason shoppers are unlikely to ramp up their spending: Their faith in the economy is sagging. Consumer confidence dropped in September, according to the University of Michigan/Reuters' consumer sentiment index fell released Friday.

Carla Fehribach, a retired airport ticket agent in St. Louis, said the stock market's failure to generate any real growth this year has made her more cautious about spending. "I'll feel a little more comfortable about spending more if the stock market and the economy turn around," said Fehribach, 67.

She and others are instead saving more. Americans saved 6.1 percent of their disposable income from April to June, the highest quarterly total in a year.

And they are slowly trimming their debt.

Overall household debt dipped to $13.45 trillion from April to June. That's a 3.2 percent decline from a peak in early 2008. People, on average, are carrying around $43,000 in debt — from mortgages and credit cards to auto loans and home equity lines.

People who defaulted on mortgages and other loans accounted for some of the decline in debt. But many other households have been paying down debts and are reluctant to take on new loans, analysts said.

The decline in net worth underscores how much household wealth depends on stock values. About a fifth of household financial assets are in stock-market holdings. And the value of those holdings fell 12 percent in the April-June period compared with the first three months of the year.

Americans' home equity isn't making up for the loss in their stock values. Last quarter, U.S. real estate values ticked up a scant 0.3 percent compared with the January-March period.

And many economists expect the home market to weaken further, especially since a federal home buyer tax credit has expired. Most expect home prices to decline, on average, 5 percent to 10 percent by the middle of next year.

Some optimism about stocks has been sparked by the gains they've made since June 30. The Standard & Poor's 500 index, a broad gauge of the market, has recovered about two-thirds of its losses from the April-June period. That translates into modest advances in household wealth since June 30. Still, for the year, stocks are up just under 1 percent.

Though the S&P 500 remains 28 percent below its October 2007 peak, employees who have stayed invested in 401(k) plans and continued to contribute have fared better. About 78 percent of them now have more money in those accounts than before the market top three years ago, according to estimates by Jack VanDerhei of the Employee Benefit Research Institute.

Still, so many people have seen their overall wealth diminish since the recession that they lack confidence to spend much.

Scott Nieberg, a St. Louis veterinarian, for example, says his retirement account is worth about what it was a decade ago. Nieberg, 53, says he's all but given up hope his nest egg will grow significantly any time soon.

His business would have to improve significantly for him to feel comfortable enough to take a vacation, he said.

"In a down economy, you just work hard," Nieberg said. "We used to take vacations. Now, we take weekends."