Americans' net worth takes a hit

By Barbara Hagenbaugh
USA Today

WASHINGTON — Americans' net worth fell in the second quarter as declines in stock prices offset increases in home values, the Federal Reserve said yesterday.

In a report that underscored the heavy toll household balance sheets have taken from the stock slide, household net worth fell $1.4 trillion, or 3.4 percent, in the second quarter to $40.1 trillion. That's the lowest since the third quarter of last year, which included the post-Sept. 11 stock-market drop.

Last quarter's decline was led by a 14.8 percent drop in stocks, the biggest loss since the third quarter of 2001, to $5 trillion.

Real estate values, meanwhile, rose 2.3 percent to $13.1 trillion.

Declines in net worth can make consumers jittery and lead them to trim spending. Consumer spending has held up well this year despite the stock market decline, but outlays likely will take a hit in the future, says Richard DeKaser, chief economist at National City in Cleveland.

"The adverse wealth effect that we've been experiencing since 2000 remains very much in place," says DeKaser, who estimates the loss in wealth will erase nearly a full percentage point from consumer-spending growth over the next year.

Net worth will also likely fall in the current quarter with the stock market's continued decline.

Other data from the report:

• The Fed study showed that homes became an even more important asset in household balance sheets last quarter. Nearly one-third of household assets were in real estate in the April-June period, the highest since 1990, when stock markets were also tumultuous.
• Net foreign investment in the United States fell to a record minus-$495 billion last quarter, meaning more money was flowing out of the United States than was invested in the United States.
• Company net worth outside farming and the financial sector rose for the first time in a year to $8.6 trillion, up $2.2 billion from the first quarter.