Economists: Increasing Wealth No Solution to Sluggish US Economy

Thursday, 05 Jun 2014 09:44 PM

By Cathy Burke

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Home values and stock prices pushed Americans' wealth to a record high — but it might not fire up a sluggish recovery, economists say.

Household net worth nudged up 2 percent to $81.8 trillion, the highest on record, according to a report by the Federal Reserve released Thursday. The figures aren't adjusted for inflation or population growth.

The value of residential real estate expanded $758 billion, according to the Fed, while direct and indirect holdings of corporate equities increased $361 billion.

"As has been the case during the past few years, the gains in household wealth were driven by appreciation in real estate and financial asset prices," Barclays said in a research note.

But Michael Feroli, an economist at J.P. Morgan Chase, told The Wall Street Journal rising stock markets and rebounding home prices aren't pumping up the economy the way they used to — because the gains are going to rich people who tend to save.

The jump "could increase the wealth effect," he said, warning, however, Americans' responses to housing gains generally "kick in slowly over time."

Another gauge of Americans' wealth — U.S. net worth as a share of disposable income — remains slightly below levels seen in 2006, Fed data show.

The Journal noted that as real-estate values rise, Americans gain more equity in their homes, which makes it easier to sell them, refinance debts, borrow, and spend.

A measure of owners' equity as a share of the value of real-estate holdings hit 53.6 percent in the first quarter, up from 51.6 percent in the fourth quarter.

The Journal called it a "positive sign" that overall household borrowing rose at an annualized 2 percent pace in the first quarter, compared with a 0.2 percent pace in the fourth quarter.

Other types of consumer credit, including student loans, grew 6.6 percent compared with the fourth quarter's 5.3 percent pace.

Total U.S. household debt was about 108 percent of disposable income in the first quarter, down from a peak burden of about 135 percent in 2007, The Journal noted.

Reuters contributed to this report.

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