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Households Cut Debt at Slower Pace

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By Greg Robb

RISMEDIA, March 14, 2011—(MCT)—U.S. households reduced debt in the fourth quarter of 2010 for the 11th straight period but at the slowest pace since the third quarter of 2008, the Federal Reserve recently reported.

The central bank’s “flow of funds” report showed that household debt fell at an annual rate of 0.6% in the fourth quarter to $13.36 trillion. This is the slowest rate since a 0.5% decline from July to September 2008 and brings the debt-to-income ratio for households to 120.9% from 121.7%.

Consumer credit rose 2% in the fourth quarter, the first increase since the second quarter of 2008. The rise in consumer credit was offset by a 1.3% decline in household mortgage debt.

Household net worth rose about $2.1 trillion to $56.8 trillion at the end of the fourth quarter. “With the stock market rising, the value of equity and mutual fund holdings jumped,” said Gary Bigg, an economist at Bank of America Merrill Lynch.

Net wealth is almost 14% below a historical peak of $65.9 trillion set in the second quarter of 2007. Net wealth equals total assets such as stocks, bonds, real estate minus liabilities such as mortgages and credit card debt.

Total debt in the U.S. nonfinancial sectors grew at a 5% rate in the fourth quarter.

State and local government debt rose at a 7.9% rate in the fourth quarter while federal government debt increased at a 14.6% rate. Total government debt rose to $11.9 trillion from $11.5 trillion in the third quarter. U.S. companies stored $1.89 trillion in cash and short-term assets at the end of the fourth quarter, up from $1.82 trillion at the end of the prior quarter.

(c) 2011, MarketWatch.com Inc.

Distributed by McClatchy-Tribune Information Services.

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