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Higher stock prices help Americans regain wealth

By CHRISTOPHER S. RUGABER and DAVE CARPENTER Published: September 21, 2012
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A jump in the stock market and rising home prices are bringing Americans closer to regaining the wealth they lost in the recession.

U.S. household net worth dipped in the April-June quarter, a Federal Reserve report released Thursday said. But gains in stock and home equity since the last quarter ended likely have raised total household wealth to within 5 percent of its peak before the Great Recession.

Millions of Americans still feeling the effects of the housing bust, or who don't own any stocks, haven't benefited as much.

Still, the increased overall wealth could give people and businesses the confidence to step up spending and boost U.S. economic growth and job creation. That's a goal of the bond-buying plan the Federal Reserve unveiled last week.

Household net worth reflects the value of assets such as homes, bank accounts and stocks minus debts such as mortgages and credit cards. It peaked before the recession at $67.4 trillion.

Tumbling home and stock prices during the recession cost Americans nearly a quarter of their wealth. From a pre-recession peak of $67.4 trillion in fall 2007, household wealth plummeted to $51.2 trillion in early 2009. As of the April-June quarter, it's back to $62.7 trillion.

Bill Hampel, chief economist at the Credit Union National Association, calculates Americans will add $1.5 trillion to $2 trillion to their net worth in the July-September quarter. That would bring net worth to about 4.3 percent below its pre-recession peak.

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Other findings

The Fed report also found that:

Americans borrowed more in the April-June quarter, marking the largest increase since the first quarter of 2008. Mortgage debt declined again, as it has each quarter for more than three years. But Americans are taking on more student and auto loans.

After-tax incomes have inched up, making debts a bit easier to manage. U.S. household debt equaled about 103 percent of after-tax income in the April-June quarter, down from 104 percent the first quarter. The ratio was 125 percent at the height of the housing bubble and about 90 percent in the 1990s.

Corporations have begun to spend some of the cash they built up during the recession If the trend continues, it could signal companies are investing and expanding more, which could lead to more hiring.

State and local governments borrowed more for the first time in six quarters. That suggests steep spending cuts by those governments, which have cost hundreds of thousands of jobs, may slow.

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