SURE, BUT HOW MUCH OF THAT IS IN PASSBOOK SAVINGS ACCOUNTS?

U.S. Households' Net Worth Up in 4Q (JEANNINE AVERSA, 3/08/07, The Associated Press)

The net worth of U.S. households climbed to a record high in the final quarter of last year, boosted mostly by gains on stocks, the Federal Reserve reported Thursday.

Net worth - the difference between households' total assets, such as houses and bank accounts, and their total liabilities, such as mortgages and credit card debt, totaled $55.6 trillion in the October-to-December quarter.

That marked a 2.5 percent growth rate from the third quarter, the previous quarterly record high.

Americans' Net Worth Grew in 2006: A new report from the Fed shows that household net worth grew at a robust rate in the fourth quarter, thanks mostly to strong gains in financial instruments (Peter Coy, 3/09/07, Business Week)

Household net worth--that's how rich you are after liabilities like the mortgage are subtracted from assets like the house--rose 2.5% in the fourth quarter and was up 7.4% from a year earlier.

How so? The strong stock market made up for the weak housing market. Household assets increased 2.4%, thanks mostly to growth in stocks, mutual fund holdings, and pension fund assets. The Standard & Poor's 500 stock index rose 6% in the fourth quarter, led by increases of more than 40% at Allegheny Technologies (ATI), Goodyear Tire & Rubber (GT), Terex (TEX), and Phelps Dodge (PD). Household real estate assets went up 0.9%, not an impressive gain but better than a decline.

On the liability side of the balance sheet, Americans pulled in their horns last year. Demand for mortgage credit has fallen five quarters in a row, Global Insight said in an analysis of the Fed data.

This is good news for the ability of consumers to keep spending and keep the economic expansion on track, despite recent negative reports from retailers. On the down side, the U.S. personal savings rate is negative, meaning that people are spending more than their disposable income. But the Mar. 8 report shows that the lack of savings is being compensated for by asset gains. In fact, Americans' ratio of household net worth to their income has been rising steadily since 2002.

Posted by Orrin Judd at March 9, 2007 6:25 AM