Recovery is erratic

WASHINGTON – The rebuilding of Americans’ wealth is proceeding in steps rather than strides.

Households’ net worth rose last quarter – the fourth straight quarterly gain. Yet tumbling stock prices have reduced their wealth since then. Some economists say Americans’ net worth may now be down slightly for the year. That helps explain why many say it will 2012 or 2013, at best, before Americans’ wealth will return to its pre-recession levels.

Net worth – the value of assets like homes, bank accounts and investments, minus debts like mortgages and credit cards – rose 2.1 percent last quarter, the Federal Reserve said Thursday. It now amounts to $54.6 trillion.

In the midst of the recession, household net worth sank as low as $48.3trillion. It’s since risen 13percent. Yet even counting last quarter’s gain, net worth would have to rise 21percent more to regain its pre-recession peak of $65.9trillion.

Household wealth is vital to the economy because consumers tend to spend according to how wealthy they feel. And their spending accounts for about 70 percent of the economy.

During the recession, sinking home equity and stock prices made shoppers skittish. Should they become more nervous about their finances, the economic rebound could weaken or stall.

As Americans have gradually recovered some of their wealth, many of them – especially the affluent – have been spending more. But the housing and stock markets remain fragile. That’s why most consumers aren’t spending as freely as they typically do in the early phases of recoveries.

Economists said it could take until at least the middle of the decade for home values to begin rising at a normal pattern again. Homes are the biggest asset for many Americans, and its fluctuations affect people’s willingness to spend. Homes have appreciated an average 4 percent a year since World War II.

Given the weakness in both home and stock prices, Mark Vitner, economist at Wells Fargo, says Americans’ net worth for the year may now be flat or down slightly.

During the first quarter, household debt dipped to $13.54 trillion, the Fed said. That translates into people on average carrying around $43,825 in debt – mortgages, credit cards, auto loans and other consumer debt. Debt shrank at an annualized rate of 2.4percent last quarter. It was the seventh straight quarterly decline.

People defaulting on mortgages and other loans accounted for some of the decline, economists said. But most of the reduction in debt involved households seeking to restore their financial health.