$1.7 Trillion Poorer
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Americans $1.7 trillion poorer
Americans' net worth falls for the second straight quarter as home and stock prices decline, but it may not hurt consumer spending, experts say.
NEW YORK (CNNMoney.com) -- Americans saw their net worth decline by $1.7 trillion in the first quarter - the biggest drop since 2002 - as declines in home values and the stock market ravaged their holdings.
Meanwhile, the amount of equity people have in their homes fell to 46.2%, the lowest level on record.
The net worth of U.S. households fell 3% to $56 trillion at the end of March, according to the Federal Reserve's flow of funds report, which was released Thursday.
The value of real estate assets owned by households and non-profits declined by $305 billion, while financial assets fell by $1.3 trillion, led mainly by a $556 billion drop in stocks and a $400 billion decline in mutual funds.
The first quarter's decline follows a $530 billion drop in wealth in the fourth quarter of 2007. Until then, net worth had been rising steadily since 2003, climbing nearly 31% over those five years. During the bear market of 2000 through 2002, household's net worth dropped 6.2%.
Spending more
The recent declines, however, may not affect consumer spending, said Michael Englund, senior economist with Action Economics. Americans have actually spent more in recent months, particularly at the gas pump as fuel prices soared.Americans "are spending everything in their wallet and borrowing more," Englund said. "But because the pump takes so much more of their dollars, they are buying fewer T-shirts."
Still, as people feel begin to feel poorer, the growth in consumer spending may slow, said Scott Hoyt, senior director of consumer economics at Moody's Economy.com.
"When wealth goes down, consumers will cut back some," he said. "There will be a drag on spending."
Household debt grew by 3.5% in the first quarter, down from 6.1% in the fourth quarter. The growth of home mortgage debt, including home equity loans, cooled to an annual rate of 3%, less than half the pace of 2007. Consumer credit, which includes credit cards, rose at an annual rate of 5.75%, the same as the 2007 pace.
The fact that consumers continue to borrow against their homes, even as they decline in value, shows how troubled Americans are.
"It signals how consumers are struggling to get cash," Hoyt said.
The Fed's report comes at a time of growing anxiety about the nation's economic health. Many economists believe the country is already in a recession, if not headed toward one.
In the first four months of the year, employers cut 260,000 jobs, and on Friday the government is expected to report an additional 60,000 losses in May. Gross domestic product rose at a sluggish annual rate of 0.9% in the first three months of the year, when adjusted for inflation.
Whether household wealth will be up or down at the close of 2008 depends more heavily on the stock market's performance than on housing values, since financial assets account for about two-thirds of net worth. Because the stock market has been rising in recent months, Englund is expecting a 6% gain in net worth for the second quarter.
- CALLES0
hedge... can you give us a hand.... plllleeeaseeeeeeeeeeeeeee
- hedge0
I'm afraid it's out of my hands, calles. The only advice I can give you is vote for a candidate who will decrease spending, keep taxes low and strengthen our currency. If these things don't happen, we will soon see how bad socialist ideals in a capitalist society can be.
- Ron Paul!....oh wait no 1 paid him any attention :(********
- but none of those candidates got nominated...monNom
- hedge and I agree. ouch********
- haha nice one hedge. because free market economics has done well so far...oh waitspifflink
- It has. Are you saying that bubble deflation and cyclical downturns equate to a broken system? Come on, now.hedge
- the severity of such situations indicate that its unhealthy. this time isn't merely a cyclical circumstance.spifflink
- So in other words, continue doing exactly what got us into this mess. You're such a transparent shill, hedge.TheBlueOne
- Continue? We have NOT kept spending low and the dollar strong, sorry.hedge
- but we have leashed china accordingly********
- Ron Paul!....oh wait no 1 paid him any attention :(
- flashbender0
CALLES meant handout - since you're so loaded and we're all so poor.
- yup! for a second i tought people took me seriouslyCALLES
- nearestexit0
i think either candidate is fucked. the economy is in piss poor shape right now. who would want to inherit this mess?
- mrdobolina0
consumer confidence will be up after bush leaves office. and hedge you know it is true.
- GreedoLives0
i feel like if i could understand this
http://en.wikipedia.org/wiki/Soc…
then there would be hope for the budget, but i absolutely don't get it..
what exactly happens to our social security dollars?
- acescence0
and of course the fed under the bush admin has totally changed the math on gdp and inflation, so the situation is actually quite a bit more desperate than they're letting on
- Changed the math? What?hedge
- yes, changed the equation to make it appear that inflation is lower than actually isacescence
- Do you have evidence of this? I've been under the impression that the various methods have remained the same for a while.hedge
- http://www.marketora…
http://www.worldnetd…
acescence - sorry, it's actually bureau of labor statistics that calculates that stuffacescence
- oh, and it appears clinton is guilty, that scoundrelacescence
- stoplying0
I got twenty bucks you can borrow.
- acescence0
desperate times call for desperate measures, we need this guy back in charge:
"Paul Volcker, a Democrat[2], was appointed Chairman of the Federal Reserve in August 1979 by President Jimmy Carter and reappointed in 1983 by President Ronald Reagan.[3] Volcker's Fed is widely credited with ending the United States' stagflation crisis of the 1970s by limiting the growth of the money supply, abandoning the previous policy of targeting interest rates. Inflation, which peaked at 13.5% in 1981, was successfully lowered to 3.2% by 1983. [1]
However, the change in policy contributed to the significant recession the U.S. economy experienced in the early 1980s, which included the highest unemployment levels since the Great Depression, and Volcker's Fed also elicited the strongest political attacks and most wide-spread protests in the history of the Federal Reserve (unlike any protests experienced since 1922), due to the effects of the high interest rates on the construction and farming sectors, culminating in indebted farmers driving their tractors onto C Street and blockading the Eccles Building.[4]"inflation peaked at 13.5% in 81, using that math we're past 14% today.
- ********0
I hope that we are not heading into another depression, but I sure feeling depressed about the current U.S. economy and the direction that our country is in under by the Bush regime.
- Considering it's not even a recession {yet?} I doubt it.hedge
- I like your optimism hedge, but it'll be a recession. Depression doubtful unless some serious shit happens with china.TheBlueOne
- I'm still waiting for the 2 consecutive quarters of negative GDP growth.hedge
- hedge0
"consumer confidence will be up after bush leaves office. and hedge you know it is true. "
I agree, dobs, confidence will spike when the new guy comes to office. The 64 million dollar question is whether or not it will maintain the trend.
- Point50
so strange; I'm having the best financial year of my life right now, albeit far from being "well off" or "wealthy". Then again, I didn't get into a shit-for-brains loan out here in Vegas like so many people I know did.
- ********0
^ The Subprime Mortgage Scandal - What Really Happened
- ********0
The Giant Pool of Money
Download the full episode for a reality check...
http://www.thislife.org/Radio_Ep…
- omgitsacamera0
hedge
reserve a place for me in the ark when the time finally comes
kthnx :)
- ********0
I have input. The american economy is way to complex for one person to comprehend.
- its not too difficult to understand the system of hallucinatory wealth built up here.spifflink
- nothing of concrete value is traded or sold anymore, just vague notions of debts and wealth on paper. MBSs, CDOs, other bullshit.spifflink
- other bullshit.spifflink
- You're very misinformed.hedge
- you are very full of shit. there is absolutely no evidence of your 'wealth' at all.spifflink
- 23kon0
Start your own local currencies.
It encourages locally sourced food - less air miles and it keeps the towns money in the town.
there was something on UK tv about a few towns doing this in england and it was quite interesting
- TheBlueOne0
Buffett has some advice:
- TDIDDY0
I read this article recently, and though it really doesn't pointedly address any solutions for this rut - it does offer insight into what actually is going wrong at the moment.
- TheBlueOne0
A few months old, but a terrific podcast with the the International Business Editor for the Telegraph(UK):