Household Worth Slashed $1.5 Trillion as Americans' Equity Holdings Soured

Sept. 17 (Bloomberg) -- Household wealth in the U.S. fell 2.8 percent in the second quarter as share prices were depressed by the European debt crisis, marking a setback for Americans’ efforts to repair finances battered by the recession.

Net worth for households and non-profit groups declined by $1.5 trillion to $53.5 trillion, according to the Federal Reserve’s Flow of Funds report issued today in Washington. The decline was the first since March 2009. Home values rose because of a tax credit that has since expired.

The Standard & Poor’s 500 Index dropped 12 percent during the three months ended June 30, erasing gains from the previous quarter. While stock indexes have climbed this quarter, renewed signs of weakness in housing and unemployment near a 26-year high may prompt Americans to increase their savings, holding back the economic recovery.

“Households are being very frugal in what they spend and allocating more of their income to paying off debt,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut. “Over time, consumers need to work themselves into a better financial position and that’s not going to happen overnight.”

The decline in wealth wiped out the first quarter’s $1.4 trillion gain, leaving households 19 percent short of the $65.9 trillion peak in the second quarter of 2007, before the recession began. Net worth bottomed at $48.3 trillion in the first quarter of 2009, when the economy contracted at a 4.9 percent annual pace. ...........(more)

The complete piece is at: http://noir.bloomberg.com/apps/news?pid=20601087&sid=aIc868J8k27w&pos=1