Higher stock prices help Americans regain wealth

WASHINGTON -- A jump in the stock market and rising home prices are bringing Americans closer to regaining the wealth they lost in the recession.

U.S. household net worth dipped in the April-June quarter, according to a Federal Reserve report released Thursday. But gains in stock and home equity since the last quarter ended have likely raised total household wealth to within 5 percent of its peak before the recession.

Millions of Americans still feeling the effects of the housing bust, or who don't own any stocks, haven't benefited as much.

Still, the increased overall wealth could give many people and businesses the confidence to step up spending and boost U.S. economic growth and job creation. That's a key goal of the bond-buying plan the Federal Reserve unveiled last week. The Fed hopes to drive interest rates down and stock prices up.

Household net worth reflects the value of assets like homes, bank accounts and stocks minus debts like mortgages and credit cards. It peaked before the recession at $67.4 trillion.

Tumbling home and stock prices during the recession cost Americans nearly a quarter of their wealth. From a pre-recession peak of $67.4 trillion in the fall of 2007, household wealth plummeted to $51.2 trillion in early 2009. But as of the April-June quarter, it's climbed back to $62.7 trillion.

The Fed report also found:

* Americans borrowed more in the April-June quarter, marking the largest increase since the first quarter of 2008. Mortgage debt declined again, as it has each quarter for more than three years. But Americans are taking on more student and auto loans.

* After-tax incomes have inched up, making debts slightly easier to manage. U.S. household debt equaled about 103 percent of after-tax income in the April-June quarter. That was down from 104 percent in the first quarter. The ratio had soared to 125 percent at the height of the housing bubble, up from about 90 percent during the 1990s.

-- Corporations have begun to spend some of the cash they built up during the recession. Corporations held $1.73 trillion cash at the end of last quarter, down from its near-peak of $1.75 trillion in the first quarter. If the trend continues, it could signal that companies are investing and expanding more, which could lead to more hiring.

-- State and local governments borrowed more for the first time in six quarters. That suggests that steep spending cuts by those governments, which have cost hundreds of thousands of jobs, may slow.

Bill Hampel, chief economist at the Credit Union National Association, calculates that Americans will add $1.5 trillion to $2 trillion to their net worth in the current July-September quarter. That would bring net worth to about 4.3 percent below its pre-recession peak.

"We're not there yet, but we're getting close," Hampel said. "Households are rebuilding their capacity to spend."

For now, many consumers are holding back in the face of still-sluggish job growth and a high unemployment rate, now 8.1 percent. Consumer confidence is at its lowest point since November, according to The Conference Board, a private research group.

Once consumer confidence "turns around, we could get a sustained period of pretty decent household spending," Hampel said.

Dennis Fassett, a health care IT consultant in the Detroit area, has benefited from rebounding home and stock prices. Yet he remains anxious about the economy.

Four years ago, behind in his retirement savings and worried about his job in the struggling auto industry, Fassett took a chance and bought rental real estate at reduced prices. Prices for his investment properties have since risen. And his retirement account is back within 10 percent of its pre-crash level.

"The economy's still looking funky," said Fassett, 50. "But I'm seeing signs of life."

Despite the steady increase in overall U.S. net worth, many Americans have seen little or no improvement in their own wealth. The gains have occurred mainly in stocks, bonds and other financial assets. Fifty-four percent of U.S. households owned no stocks of stock mutual funds as of the end of 2011, according to data from the Investment Company Institute.

Home equity, the primary source of wealth for most American households, has just barely started to recover.

The value of Americans' stock and mutual fund holdings fell a little over 4 percent last quarter to $14.3 trillion. That lowered net worth by about $320 billion to $62.7 trillion. But it's well above the recession-era low of $9.1 trillion at the end of 2008.

By contrast, home equity rose in the second quarter for only the second time since 2006, up 2.1 percent to $16.9 trillion. That's up from a bottom of about $16.1 trillion. Home equity remains far below the $22.7 trillion reached in 2006, at the peak of the bubble.

Stocks account for about 22 percent of Americans' wealth. Housing makes up 27 percent, down from one-third at the peak of the bubble. The rest of household net worth is made up of savings accounts, bonds, pension fund holdings and ownership stakes in small businesses.

Stock ownership is much more concentrated than real estate. About 80 percent of stocks are held by the wealthiest 10 percent of the population. That means a majority of Americans don't enjoy much of a lift from stock-market rallies.

That said, wealthier Americans drive an outsize proportion of consumer spending: About 20 percent of Americans account for about 40 percent of spending.

Americans with 401(k) retirement savings accounts, especially those who have continued to contribute to them, have benefited from the stock market's gains. More than 96 percent of workers with 401(k) plans now have more money in their accounts than before the market top five years ago, according to the Employee Benefit Research Institute in Washington.

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Carpenter reported from Chicago.