The net worth of U.S. households increased in the second quarter as a rebound in stock market prices and further gains in real estate values bolstered wealth, a report by the Federal Reserve showed.
The Fed reported that net worth climbed by $1.08 trillion, or 1.2 percent, to $89.1 trillion, led by a $474 billion increase in housing wealth. Americans’ stock and mutual portfolios climbed by $452 billion. Money in checking and saving accounts also rose slightly.
Household wealth, or net worth, reflects the value of homes, stocks and other assets minus mortgages, credit card debt and other borrowing. The Fed’s figures aren’t adjusted for population growth or inflation.
A 1.9 percent gain in the Standard & Poor’s 500 Index in the second quarter, along with household wealth generated from rising house prices, signal Americans’ financial positions continue to strengthen in the eighth year of the expansion. A re-acceleration in wages would provide a further boost to balance sheets, giving consumers even greater wherewithal to continue spending.
However, Americans are also taking on more debt, particularly mortgages, which suggests they are more confident in their economic futures and their ability to handle the debts.
Household borrowing rose at a 4.4 percent annual rate, the report also showed, up from 2.7 percent growth in the first quarter of 2016. Mortgage debt rose 2.5 percent, the most since the recession.
Consumer spending has propelled economic growth this year as the nation nears what economists consider full employment. The housing market continues to strengthen too.
However, the U.S. central bank is seen keeping interest rates unchanged next week amid concern that inflation is mired at low levels, Reuters reported.
Meanwhile, the Wall Street Journal explains that the data "underscore the U.S. economy’s round trip over the past decade, from a housing bubble to a deep recession to a long and slow recovery that, while impressive in aggregate, has left many households behind."
The Fed’s report provides no information about how assets are distributed among households, but a relatively modest share of the stock market is owned by middle-income households. Edward Wolff, an economist at New York University, has estimated that as of 2013, about 90% of stocks and mutual funds were owned by the wealthiest 10% of households.
“The winners in recent years aren’t the same people who lost out in the crash,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, told the Journal.
(Newsmax wire services contributed to this report).
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