The net worth of American households grew between April and July, the first quarterly gain in nearly two years, boosted largely by rising stock and home prices, the Federal Reserve said Thursday.
The increase suggests that households may have begun to recover from record losses of wealth since the recession began in December 2007. A Fed report in March showed that since the start of 2008, falling housing and stock values wiped out $11 trillion in Americans' net worth. The losses erased four years of gains, decimated retirement savings and college funds, and upended life plans for millions of people.
Many leading economists, including Fed Chairman Ben S. Bernanke, now think the economic downturn, one of the worst since the Great Depression, is probably over. Economic forecasters say the economy has probably begun growing again as public-works projects funded by the $787 billion stimulus package get underway and businesses, after months of cutting back, are being forced to place new orders to replenish inventories.
The biggest boon to household wealth has been an extended rally on Wall Street. U.S. stock markets seized early on signs that the economy's slide was slowing, and they have rebounded as much as 50 percent since March. The value of stock holdings jumped 21.7 percent during the second quarter, the Fed report showed.
A smaller boost to household wealth has come from an improving, albeit still weak, housing market, which appears to be closer to bottoming out.
A Commerce Department report released Thursday showed that housing starts rose 1.5 percent in August, to a seasonally adjusted annual rate of 598,000. Sales of previously owned homes also increased in August for the fourth consecutive month. The Fed report showed, however, that prices have not increased enough to substantially lift homeowner equity. Homeowners had only slightly more equity in their homes in the second quarter compared with the first quarter.
Meanwhile, household debt shrank at an annual rate of 1.7 percent, the fourth straight quarterly contraction. Home mortgage debt decreased at an annual rate of 1.4 percent. Consumer credit decreased at an annual rate of 6.5 percent. In addition to consumers paying off debt, the declines were also because of banks writing off credit card debt they no longer expect to be repaid and tighter credit conditions, analysts said.
The recovery in household wealth will probably continue into the current quarter, which ends Sept. 30, because stock prices have kept rising, home prices for existing homes have firmed up and consumers have not taken on huge amounts of new debt, said Bernard Baumohl, chief global economist for the Economic Outlook Group.
Analysts have blamed the loss of wealth for the sharp pull-back by American consumers, which in turn has hurt economies around the globe. But they don't anticipate the rebound to significantly boost consumer spending anytime soon, as households still have a lot of rebuilding to do. From April to July, household net worth rose $2 trillion, to $53.1 trillion, the Fed report showed, but it remains 19 percent below its peak of $65.3 trillion in 2007.
"Consumers are still nervous about their job security and income growth and in addition to that, those people who are working have not seen significant increases in pay," Baumohl said.
The Labor Department reported Thursday that the number of people filing for state unemployment benefits for the first time last week fell by 12,000, more than expected, to a seasonally adjusted 545,000, the third drop in the past four weeks. But the number of claims remains well above the 300,000 range considered typical in a healthy economy.
The unemployment rate, now at 9.7 percent, is expected to keep rising and to top 10 percent by year's end. A record 5 million people have been out of work for 27 weeks or longer, reflecting the reluctance of employers to resume hiring and stoking fears that the nation is entering a so-called jobless recovery in which the economy expands and corporate profits rebound but employment lags behind.
"Much like everything else we're seeing, this is a little bit better than it's been," Wachovia economist Mark Vitner said of the Fed report. "But if you were to talk to any representative sample of American households, they would tell you their finances are more challenged today than they've been in recent years."
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