By Rex Nutting
RISMEDIA, September 21, 2009—(MCT)—American households were $2 trillion richer on June 30, 2009 than they were three months earlier, the first time in two years that household net worth has increased, the Federal Reserve recently reported.
Household wealth rose in the second quarter at a 17% annual rate, or $2 trillion, to $53.1 trillion after falling at a 13% rate in the first quarter, the Fed said. It was the first time since the second quarter of 2007 that wealth had increased. Net worth is down $12.2 trillion from the peak in 2007, an indication of how much the collapse in stock prices and home prices have hurt. The figures are not adjusted for inflation.
Net worth is defined as assets minus liabilities. Assets rose by $2 trillion to $67.2 trillion. Liabilities fell by $34 billion to $14.1 trillion. The rally on Wall Street was the main reason for the increase in household wealth, but rising home prices contributed as well. Wealth in corporate equities rose by $1.04 trillion, while real estate wealth rose by $139 billion. Assets held in mutual funds, life insurance and pension funds rose by $1.06 trillion. Households had lost real-estate wealth for nine consecutive quarters before the second quarter’s gain.
Consumers continued to pay down debts or have their debts written off at a record pace. In the second quarter, household debt fell at a 1.7% annual rate to $13.7 trillion, matching the record percentage decline in the fourth quarter. Household debt has fallen four quarters in a row and is down 5% from the peak. Before this recession, household debt had never declined in any quarter dating back to 1952.
Stimulus payments boosted disposable incomes by 5.2% annualized to $10.9 trillion annually. It was the first increase since the stimulus payments in the second quarter of 2008. Over the past four quarters, disposable incomes fell 0.6%, the first year-over-year decline on record dating back to 1952.
Household debt dropped to 126% of disposable income from 128% in the first quarter and a record 131% in the first quarter of 2008. In 2000, it was 91%.
Household mortgage debt fell 1.4% annualized to $10.4 trillion, the fifth consecutive decline in mortgage debt. Consumer credit fell at a 6.1% annual rate to $2.5 trillion. It was the largest percentage decline in consumer debt since 1980. In a separate report, the Fed has said consumer credit declined even faster in July, dropping at a 10.4%.
Total debt in the economy grew at a 4.9% annual rate, boosted by massive debts taken on by the federal, state and local governments. Federal government debt rose at a 28.2% annual rate, the fourth straight increase of more than 20%. In the past year, federal debt rose by $1.9 trillion to $7.2 trillion. State and local borrowing rose at an 8.3% annual rate in the quarter to $2.3 trillion. Nonfinancial business debt fell at a 1.8% annual rate, despite a 1% increase in corporate debt. The net worth of nonfarm nonfinancial companies fell at a 175 annual rate, the seventh consecutive decline.
Debt of domestic financial firms fell at a 12.2% annual rate to $16.5 trillion, the largest percentage decline since 1961.
(c) 2009, MarketWatch.com Inc.
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