(Bloomberg News) Household wealth in the U.S. climbed in the first quarter by the most in seven years, bolstered by a jump in stocks prices and more stable home values.
Net worth for households and non-profit groups increased by $2.83 trillion from January through March, the biggest gain since the last three months of 2004, to $62.9 trillion, the Federal Reserve said today in its flow of funds report from Washington.
"The continued recovery from the large hit to household net worth during the financial crisis is a positive development for the economy," Dana Saporta, U.S. economist at Credit Suisse Securities in New York, said before the report "Improved net worth is a prerequisite for households to go out and increase their spending."
A stronger stock market has allowed Americans to make progress in repairing balance sheets battered by the housing collapse and the worst recession since the Great Depression. At the same time, still-depressed home values and a Standard & Poor's 500 Index that's erased about half its 12 percent first- quarter surge may restrain the pace of asset-value appreciation.
The value of financial assets held by American households, including stocks and pension funds, increased by $2.29 trillion in the first quarter, according to today's flow of funds data. Household real estate assets rose by $478.6 billion.
Owners' equity as a share of total household real-estate holdings increased to 40.7 percent last quarter from 38.8 percent.
The S&P 500 declined 6.6 percent from the end of the first quarter through yesterday as Europe's debt crisis worsened and economies in emerging markets like China cooled. It climbed 0.5 percent to 1,322.21 as of 12:30 p.m. in New York today after China cut interest rates for the first time since 2008.
Fed Chairman Ben S. Bernanke said today the economy is at risk from the euro area's sovereign debt crisis, as well as the prospect of tighter U.S. fiscal policy.
"The situation in Europe poses significant risks to the U.S. financial system and economy and must be monitored closely," Bernanke said in testimony to the Joint Economic Committee in Washington. "As always, the Federal Reserve remains prepared to take action as needed to protect the U.S. financial system and economy in the event that financial stresses escalate."
A sustained cooling in the U.S. labor market may also make it harder for households to shore up their finances. Payrolls rose 69,000 in May, less than half the median forecast in a Bloomberg News survey of economists, and following a revised 77,000 rise in April that was smaller than initially estimated, Labor Department figures showed June 1. The jobless rate climbed to 8.2 percent from 8.1 percent.
Household debt dropped at a 0.4 percent annual rate last quarter, extending declines that began in the second quarter of 2008, today's report showed. Mortgage borrowing decreased at a 2.9 percent pace. Other forms of consumer credit, including auto and student loans, increased at a 5.8 percent pace.
Total non-financial debt climbed at a 4.7 percent annual pace last quarter, led by a 12 percent increase by the federal government and a 5.2 percent gain among businesses. State and local government borrowing dropped at a 1.8 percent pace.