By Timothy R. Homan March 11 (Bloomberg) — Household wealth in the U.S. grew in the fourth quarter at a slower pace, limited by a drop in home values that indicates the recovery in consumer spending will take time to gain speed. Net worth for households and non-profit groups rose by $700 billion to $54.2 trillion, marking a third consecutive gain, according to the Federal Reserve’s Flow of Funds report issued today in Washington. Wealth increased by $2.78 trillion in the third quarter. American consumers cut borrowing at a record pace last year, the figures showed, in a bid to repair the damage from overextended balance sheets and the loss of wealth during the recession. The need to replenish savings combined with the loss of 8.4 million jobs means spending, the biggest part of the economy, will be restrained. “We’re probably feeling a little bit of a hangover from the decline in real-estate markets,” Guy LeBas , chief fixed- income strategist at Janney Montgomery Scott LLC in Philadelphia, said before the report. “It’s hard to justify higher spending if you don’t have income coming in the door.” The Standard & Poor’s 500 Index increased 5.5 percent in the last three months of 2009, compared with a 15 percent gain the previous quarter. Household real-estate holdings fell in value by $109.8 billion in the last three months of 2009, the first decrease in three quarters, according to the Fed’s report. Stocks Fall The S&P 500 decreased 0.3 percent to 1,142.52 at 12:18 p.m. in New York, depressed by concern that faster inflation in China will lead to higher interest rates that will slow the global recovery. Since the recession began in December 2007, Americans have been constrained by periods of falling home and stock prices, tight credit and rising unemployment. While stocks have gained and home prices began stabilizing last year, borrowing standards have tightened and unemployment remains near a 26- year high. The jobless rate , which has not increased since October, held at 9.7 percent last month, according to a March 5 report from the Labor Department. The rate reached 10.1 percent in October, the highest level since 1982. Owners’ equity as a share of their total real-estate holdings increased to 38.1 percent last quarter from 37.6 percent in the third quarter, today’s Fed report showed. Less Borrowing Consumer debt dropped at a 1.2 percent annual pace in the fourth quarter, a seventh consecutive decline. For all of 2009, borrowing decreased 1.7 percent, the first decline since records began in 1952. Mortgage borrowing declined at a 0.8 percent pace from October through December, while other forms of consumer credit fell at a 5.8 percent rate, the Fed’s report showed. Total borrowing by consumers, businesses and government agencies increased at an annual rate of 1.6 percent last quarter, led by a 13 percent advance by the federal government. Borrowing by businesses decreased at a 3.2 percent rate. Borrowing by the federal government reflected, in part, spending linked to President Barack Obama ’s stimulus plan. State and local government borrowing climbed at a 4.7 percent pace. The economy grew at a 5.9 percent rate in the last three months of 2009, the fastest pace in six years. Economists surveyed by Bloomberg News this month forecast the expansion will slow to a 2.8 percent pace in the first quarter of 2010. To contact the report on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net
Read more here:
Household Wealth in U.S. Increases at a Slower Pace as Home Values Decline
