(Adds background on corporate profits in sixth paragraph.)
June 9 (Bloomberg) -- Household wealth in the U.S. climbed by $943 billion in the first quarter of 2011 as rising share prices outstripped declines in home values.
Net worth for households and non-profit groups increased at a 6.8 percent annual pace to $58.1 trillion after rising at a 19 percent pace in the previous three months, the Federal Reserve said today in its flow of funds report from Washington. American households also cut debt for a 12th consecutive quarter.
The 5.4 percent increase in the Standard & Poor’s 500 Index last quarter helped boost household wealth that remains below pre-recession levels. Stock declines, a weakening housing market and rising unemployment in the current quarter probably means households will continue saving and cutting debt, slowing the spending that accounts for 70 percent of the economy.
“The easy part of the repair of balance sheets may be behind us,” Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York, said before the report. “It’ll be tougher to get big increases in household wealth. We need to at least see house prices showing signs they are approaching stability.”
Since reaching a five-year low of $49.4 trillion in the first quarter of 2009, net worth has improved by $8.7 trillion. That still leaves it $7.7 trillion below the record high of $65.8 trillion reached in the quarter ended June 2007, six months before the recession began.
Companies had a record $1.91 trillion in cash and other liquid assets at the end of the first quarter, the report also showed, up from $1.86 trillion in the prior three months. Six consecutive quarters of profit growth helped fuel a 96 percent jump in the Standard & Poor’s 500 Index from its recession-low in March 2009 through March 2011.
The value of financial assets, including stocks and pension fund holdings, held by American households increased by $1.16 trillion in the first quarter, today’s report showed, as the Fed’s planned purchases of $600 billion in Treasuries through June continued to push investors into riskier assets.
The value of real estate fell by $298.5 billion following the prior quarter’s $84.4 billion drop.
Home values may keep falling as unemployment causes foreclosures to mount. The S&P/Case-Shiller index of property values across the nation was down 4.2 percent in the first quarter from the previous three months, the biggest one-quarter decrease since the first three months of 2009. The national price index fell to its lowest since the second quarter of 2002, and was down 34 percent from the peak reached in the second quarter of 2006.
Robert Shiller, a co-founder of the index, told a conference in New York today that a further decline in property values of 10 percent to 25 percent in the next five years “wouldn’t surprise me at all.”
Owners’ equity as a share of total real-estate holdings fell to 38 percent last quarter from 38.9 percent in the last three months of 2010.
Household debt fell at a 2 percent annual rate in the first quarter. Mortgage borrowing decreased at a 3.4 percent pace, the biggest decline in a year. Other forms of consumer credit, including auto and student loans, climbed at a 2.4 percent pace. It was the second consecutive gain following nine quarterly decreases.
Americans have cut debt and increased savings to cope with an unemployment rate that averaged 9.6 percent last year. The rate fell to 8.8 percent in March and climbed back to 9.1 percent in May, the Labor Department said last week.
A surge in gasoline prices caused by turmoil in the Middle East prompted consumers to slow spending, paring economic growth. The average price of a gallon of regular unleaded gasoline at the pump rose to an almost three-year high of $3.99 on May 4 and has since declined by about 26 cents.
Consumer spending rose at a 2.2 percent annual pace in the first quarter, compared with 4 percent in the prior three months which was the most in four years, according to Commerce Department data.
Total non-financial debt in the first quarter grew at a 2.3 percent annual pace, led by a 7.8 percent increase by the Federal government and a 4 percent gain among businesses. State and local government borrowing fell at a 2.9 percent pace.
Some economists lowered their projections for grow last week as the smallest payroll gains in eight months capped a series of data suggesting the economy was decelerating. Among them, Dean Maki, chief U.S. economist at Barclays Capital Inc., trimmed his 2011 forecast to 2.5 percent from a 3.1 percent estimate at the beginning of the year.
--Editors: Carlos Torres, Christopher Wellisz
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