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Stock rally helps regain wealth

Stock rally helps regain wealth

March 9th, 2012 in News

WASHINGTON (AP) - Americans are climbing further out of the hole they sank into during the Great Recession.

A stock rally at the end of 2011 helped rebuild more of their lost wealth - a trend that carried into 2012. Households responded by borrowing more for the first time since the financial crisis began, even as home values fell further.

Household wealth rose 2.1 percent to $58.5 trillion in the October-December quarter, the most in a year. Still, it would have to rise 13 percent more to regain its pre-recession peak.

Americans' stock portfolios rose nearly 10 percent last quarter to drive the gains. And stocks have increased even further since then. The Standard & Poor's 500 index has jumped 24 percent since early October.

Neerja Pahwa is sensing a difference.

Pahwa, a flight attendant and fragrance consultant from St. Louis, still hasn't recouped all of her investment losses suffered during the recession. But she's secure enough with her finances to eat out and stop by Starbucks more frequently. And she recently made a down payment on a retirement home in Florida.

"Things are looking brighter and sunnier," said Pahwa, 64, who hopes to retire next year if the economy keeps improving. "I don't have too much in my pocket. But I know it's coming. Things are only going to get better."

Household wealth, or net worth, is the value of assets like homes, bank accounts and stocks, minus debts like mortgages and credit cards. It bottomed out during the recession, at $49 trillion in the first quarter of 2009. But it's still below its pre-recession peak of $66 trillion.

Greater net worth can boost the economy. When people feel wealthier, they spend more. That speeds up growth and businesses respond by stepping up hiring and expansion plans.

Corporations are also wealthier. They held a record $2.2 trillion in cash at the end of the year.

Still, few Americans are seeing returns on their biggest investment. Home values dropped 1.3 percent in the fourth quarter to roughly $16 trillion. They have now fallen nearly 24 percent since the recession began.

The housing market could pick up if the job market keeps strengthening. The economy has added 200,000 net jobs on average in each of the months from November through January, lowering the unemployment rate to 8.3 percent. Economists predict employers added more than 200,000 jobs last month, too. The government will release the February jobs report on Friday.

The improved economic outlook has made people more willing to borrow. Household debt increased at an annual rate of 0.25 percent, the first increase since mid-2008.