Americans' net worth increases with stocks

WASHINGTON --- Americans are recovering their shrunken wealth -- gradually.

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Household net worth rose last quarter, mainly because the healing economy boosted stock portfolios. But the gain was slight, and it was less than in the previous two quarters.

The Federal Reserve said Thursday that net worth rose 1.3 percent in the fourth quarter to $54.2 trillion. It marked the third straight quarter of gains. But economists say consumers would need a stronger and more prolonged increase in their wealth to persuade them to ratchet up spending.

Net worth had risen by a more robust 4.5 percent in the second quarter of 2009 and an even faster 5.5 percent in the third quarter. Net worth is the value of assets such as homes, checking accounts and investments minus debts such as mortgages and credit cards.

Even with the gain, Americans' net worth would have to rise an additional 21 percent just to get back to its pre-recession peak of $65.9 trillion.

Growth in stock portfolios delivered the biggest lift to net worth in the October-to-December period. The value of stocks rose by nearly 4 percent to $7.7 trillion. Higher home prices helped a bit. The value of real-estate holdings edged up 0.2 percent.

During the recession household net worth had plunged as low as $48.5 trillion in the first quarter of 2009. Stock holdings and home values fell.

For all of last year, consumer spending dropped 0.6 percent. This year, consumer spending is projected to grow about 2.2 percent, according to the National Association for Business Economics.

Household debt -- including mortgages, credit cards, auto and student loans -- contracted at an annual rate of 1.75 percent in 2009, the Fed report said.

Benefiting most in the fourth quarter were those invested in the stock market. The Standard & Poor's 500, a broad barometer of stocks, climbed 5 percent in the quarter. The Dow Jones industrial average gained 7 percent.

But the gains have slowed this year. The two indexes have risen just 2 percent and 1 percent, respectively. Even with the market's rally, the S&P 500 is still 27 percent off its October 2007 peak.