After declining in the spring, Americans' wealth grew 2.2 percent in the July-September quarter as a rebound on Wall Street boosted stock portfolios.
Household net worth rose to nearly $55 trillion, even though the value of real estate holdings sank 3.7 percent, the Federal Reserve said Thursday.
That's far above the bottom hit during the recession: $49 trillion in the first quarter of 2009. Yet net worth would have to rise an additional 20 percent to regain its pre-recession peak of $66 trillion. That's a reminder of Americans' vast loss of wealth over the past three years.
Still, they are making steady, if still gradual strides in rebuilding their assets. And stocks have made additional gains over the past five weeks, further boosting wealth since the new quarter started Oct. 1.
The increased net worth is lifting hopes for the economy, because consumers tend to spend according to how wealthy they feel. And their spending drives about 70 percent of economic activity. Last quarter, consumers increased their spending at the fastest pace in nearly four years.
Net worth is the value of assets such as homes and investments, minus debts like mortgages and credit cards. Its bounce-back last quarter came after household wealth had dropped 2.6 percent in the spring, the first decline since early 2009. At the time, investors' fears over Europe's debt crisis had shriveled stock portfolios.
Since then, stocks have surged. And household wealth rose in the July-September quarter as a result. The value of households' stock portfolios reached $7.8 trillion, a nearly 14 percent increase from the second quarter.
Buoyed by its strongest September since 1939, the stock market enjoyed by far its best quarterly showing in a year during the third quarter. The Standard & Poor's 500, a broad gauge of the market's performance, climbed 10.7 percent.
The last quarter to produce higher returns was the July-September period of 2009 — midway through a 13-month bull rally — when the S&P 500 jumped about 17 percent.
It all translates into more money for the roughly half of U.S. households that own stocks or stock mutual funds. As measured by the Dow Jones U.S. Total Stock Market Index, stock values gained $1.4 trillion in value during the quarter and $1.2 trillion more between Sept. 30 and the close of trading Wednesday. About $15 trillion is now invested in U.S. stocks, based on the Dow Jones U.S. Total Stock Market Index.
The current fourth quarter is further raising hopes for the economy because stocks have so far risen close to 8 percent, with three weeks left to go in the year.
As much as savings were shrunk by the market's plunge in 2008 and early 2009, many investors are whole again thanks to the market's rise and their continued investment in retirement accounts.
According to estimates by Jack VanDerhei of the Employee Benefit Research Institute in Washington, 86 percent of people who have 401(k) retirement savings plans now have more money in their accounts than they did at the market peak in October 2007.
That statistic doesn't tell the whole story, though. Recovery has been much slower for older workers, who lost more in the downturn. Nearly a third of workers with 20 or more years in those plans still have less money in their retirement accounts than they did three years ago, according to EBRI data.
Stocks remain well off their 2007 highs: The S&P 500 is down about 22 percent from its peak. Still, the index has rallied back to where it stood in the first half of September 2008, early in the collapse.
Weak values for homes and other real estate holdings are keeping a lid on the improvement in Americans' wealth, according to the Fed's report. The value of those holdings fell 3.7 percent last quarter. That followed a scant 0.5 percent rise in the prior three months.
The outlook remains dim. Homes are often peoples' single-biggest asset. But their values are still depressed in many markets. Most economists expect home prices to decline around 5 percent to 10 percent by the middle of next year.
AP Business Writer Dave Carpenter in Chicago contributed to this report.