U.S. house­hold wealth jumps $2T, led by ris­ing stock mar­ket

The Denver Post - - BUSINESS - By Christo­pher Ru­gaber

WASH­ING­TON» A stock mar­ket rally, which has since re­versed, pro­pelled U.S. house­hold net worth to a record high of $109 tril­lion in the July-Septem­ber quar­ter.

The Fed­eral Re­serve said Thurs­day that the value of Amer­i­cans’ stock and mu­tual fund hold­ings soared $1.2 tril­lion. Home val­ues rose $200 bil­lion. Other as­sets, such as bank ac­counts, also in­creased. To­tal net worth climbed $2 tril­lion from nearly $107 tril­lion in the April-June quar­ter.

Greater house­hold wealth can help the econ­omy by lift­ing con­sumer spend­ing. Yet wealth has been in­creas­ingly con­cen­trated since the Great Re­ces­sion, with just 10 per­cent of the U.S. pop­u­la­tion own­ing 84 per­cent of stocks.

Richer house­holds are less likely to spend from ad­di­tional wealth com­pared with poorer ones.

The fig­ure re­flects the value of as­sets like homes, bank ac­counts and stocks mi­nus debts like mort­gages and credit cards. The fig­ures aren’t ad­justed for in­fla­tion or pop­u­la­tion growth.

Since the July-Septem­ber quar­ter cov­ered by the Fed’s re­port, house­hold wealth has suf­fered a sharp blow, and may be on track to de­cline in the fi­nal three months of 2018.

The S&P 500 stock mar­ket in­dex reached a record high Sept. 20, only to fall steadily through Oc­to­ber and Novem­ber. It has also fallen sharply this week over fears of a wors­en­ing trade fight be­tween the United States and China and a po­ten­tial slow­down in U.S. and global eco­nomic growth.

On Thurs­day, the S&P 500 fell sharply through most of the day be­fore re­cov­er­ing af­ter a news re­port sug­gested that the Fed­eral Re­serve could slow its cur­rent pace of in­ter­est rate hikes. The in­dex closed down just 4 points, or 0.2 per­cent, at 2,696.

The in­creas­ing im­por­tance of stock own­er­ship to build­ing wealth, com­pared with own­ing a home, has ex­ac­er­bated wealth in­equal­ity since the re­ces­sion. For most mid­dle-class Amer­i­cans, real es­tate own­er­ship is the main source of wealth.

While home prices have risen at a ro­bust pace for the past five years, they haven’t in­creased as much as stocks. And home price growth has slowed this year, along with sales.

Strong gains in house­hold wealth haven’t spurred as much spend­ing in the past decade as in pre­vi­ous years. His­tor­i­cally, in what economists call the “wealth ef­fect,” an ad­di­tional dol­lar in fi­nan­cial or real es­tate wealth has lifted spend­ing by 3 to 5 cents, which ac­cel­er­ates the econ­omy.

But since the re­ces­sion, Amer­i­cans have been more re­luc­tant to spend from their wealth. Economists sug­gest that house­holds in­creas­ingly see wealth gains as tem­po­rary and are more cau­tious about spend­ing it as a re­sult.

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