Looking up: Household wealth climbs to new high

Tim Mullaney | USA TODAY

Households have finally reclaimed all the wealth they lost in the housing and stock-market busts — at least, if you don't count inflation.

American families' wealth grew by $3 trillion in the first quarter to reach an all-time high of $70.4 trillion, the Federal Reserve said Thursday. That topped the previous peak of $68 trillion in the third quarter of 2007, just before the recession began.

In the January-March quarter, gains in stocks and mutual funds accounted for about half the nation's $3 trillion increase in wealth. Rising home prices made up about one-fourth. The rest came from higher pension fund reserves, greater ownership of cars and other goods and lower debts.

The gains aren't translating into a quick boom in consumer spending, Moody's Analytics economist Scott Hoyt said. One reason is that Americans are still 11% poorer than in 2007, after adjusting for inflation and population growth.

With those adjustments, the average household has recovered only about 63% of the wealth it lost, according to calculations by the Federal Reserve Bank of St. Louis. Affluent households have benefited most because most of the recovered wealth has come from higher stock prices. The wealthiest 10% of Americans own about 80% of stocks.

The recession cost Americans $15.6 trillion in wealth.

Average household wealth, adjusted for inflation, was $539,500 at the end of last year, according to the St. Louis Fed. Yet, most households own less than the average, which is skewed by how much wealth belongs to the most affluent.

"Most families have recovered much less than the average amount," the St. Louis Fed report says.

Household wealth, or net worth, reflects the value of assets such as homes, stocks and bank accounts, minus debts such as mortgages and credit cards.

The healthier balance sheets could cause consumers to begin spending more freely later in the year, but they haven't yet, said Paul Edelstein, director of financial economics at IHS Global Insight. One sign that consumers' confidence is beginning to grow is that the Fed's report shows households are shifting their financial assets from bonds to more aggressive bets on stocks, he said,

"The hope is that consumption will follow this,'' he said. "We're piling up assets but not necessarily using them.''

In the past five years, inflation has eroded about 10% of America's regained wealth, and the number of households has increased 3.8 million to 115 million from the third quarter of 2007 through the end of last year. The regained wealth is now divided more broadly.

According to Thursday's Fed report, American households, government and businesses owed $40.6 trillion, rising at a 4.6% annual rate, the central bank reported. That's down about a quarter of a percentage point from 2012.

Household debt was $12.8 trillion, dropping at an annual rate of 0.6%, the Fed said. Auto loans and student loan balances grew, the bank said.

Corporations boosted borrowing at a 5.3% pace, down from $6 billion last year. In total, businesses owe $12.9 trillion. Total government debt was $14.9 trillion.

The federal government's debt grew at an annual pace of 10.3%, which was still lower than last year, the central bank said. State and local governments also boosted their debt at a 1.9% yearly clip, after modestly shrinking their debt load last year.

State-level tax collections rose 9.3% in the first quarter, as tax hikes in California paced the gains, said the Rockefeller Institute of Government in Albany, N.Y. But it's too soon to conclude that the recovery will produce sustained gains in taxable income and tax collections, clouding the outlook for states to boost spending, the institute said.

Contributing: Associated Press