Americans regaining their lost wealth

By JEANNINE AVERSA and DAVE CARPENTER, AP Business Writers Jeannine Aversa And Dave Carpenter, Ap Business Writers – 1 hr 58 mins ago

The Federal Reserve said Thursday that net worth rose 1.3 percent in the fourth quarter to $54.2 trillion. It marked the third straight quarter of gains. But economists say consumers would need a stronger and more prolonged increase in their wealth to persuade them to ratchet up spending.

Even with the gain, Americans‘ net worth would have to rise an additional 21 percent just to get back to its pre-recession peak of $65.9 trillion. That illustrates Americans‘ vast loss of wealth from the worst downturn since the 1930s.

During the recession, which began in December 2007, household net worth had plunged as low as $48.5 trillion in the first quarter of 2009. Stock holdings and home values nose-dived. As their net worth evaporated, Americans felt less inclined to spend.

By contrast, in 1983, when the economy was recovering from the 1981-82 recession, consumer spending surged 5.7 percent. Unlike past rebounds led by ordinary shoppers, this one so far has been driven more by spending from businesses, foreigners and — until it runs out — government stimulus. Consumers have been spending more lately. But they remain cautious.

Each dollar increase in household wealth translates into roughly three to four cents of consumer spending over two years, Hoyt said.

Just ask Marcia Karon, 55, of Atlanta. She‘s felt little benefit from the economic rebound or the stock market. Her family‘s finances are being crimped in other ways. Her husband has taken two pay cuts in the past year, their property taxes remain high and "everything else is going up," she says.

Not until 2012 does Hoyt think household wealth will return to its pre-recession levels. A severe setback to the economy could delay it further, he added.

Household debt — including mortgages, credit cards, auto and student loans — contracted at an annual rate of 1.75 percent in 2009, the Fed report said. It was the first annual decline on records going back to 1945.

But the gains have slowed this year. The two indexes have risen just 2 percent and 1 percent, respectively. Even with the market‘s rally, the S&P 500 is still 27 percent off its October 2007 peak.

Holders of 401(k) retirement accounts have recovered somewhat from the walloping they took in the meltdown. But even with continued contributions to those accounts, many are still struggling. Average account balances for 401(k) contributors ages 45 and older remained 2 to 3 percent lower at the end of December than at the end of 2007, according to the Employee Benefit Research Institute.

Some have fared better.

Julie Arnheim, 43, of Los Altos Hills, Calif., returned to work a year ago because the economy had beaten down her and her husband‘s finances. Now, thanks to the stock market‘s rebound, their net worth has come all the way back from a 30 to 35 percent drop.

"We‘ve lost a year and a half of growth, but it‘s easy to be upbeat," says Arnheim, an entrepreneur. "There‘s a lot of retired people I know who were hurt, and they don‘t have the longevity for the market to come back and keep growing."

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Carpenter reported from Chicago.



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