Household Wealth Tumbles in First Quarter

Washington, DC, June 12, 2009--Household wealth fell in the first quarter by $1.3 trillion, extending the biggest slump on record, according to the Federal Reserve.

Net worth for households and non-profit groups decreased to $50.4 trillion, the lowest level since 2004, from $51.7 trillion in the fourth quarter, according to the Fed's Flow of Funds report. The government began keeping quarterly records in 1952.

Americans are cutting back on spending as unemployment surges, home prices continue to drop and wealth evaporates, signaling any economic recovery will be slow to develop.

The drop in net worth is one reason Americans are boosting savings, blunting the effect of the tax breaks and income supplements from the Obama administration’s stimulus plan.

“It’s going to be very difficult to have any recovery in consumer spending without jobs and incomes recovering first,” said Christopher Low, chief economist at FTN Financial in New York.

“The probability of a debt-financed consumer spending binge like we saw in the last expansion is essentially nil.”

One positive aspect of today’s Fed report is that the decreases in net worth are starting to ease. Wealth dropped by a record $4.9 trillion in the last three months of 2008.

Real-estate-related household assets decreased by $551.1 billion, following a $974.5 billion decrease in the fourth quarter.

Owners’ equity as a share of their total real-estate holdings decreased to 41.4 percent last quarter from 42.9 percent in the fourth quarter.

Consumer debt fell at a 1.1 percent annual pace following a 2 percent decrease in the fourth quarter that was the first drop on record.

Business borrowing decreased at a 0.3 percent pace after rising 1.5 percent the prior quarter, the Fed said.