Dave Carpenter, AP Economics Writers
Jeanine Aversa, AP Economics Writers
WASHINGTON (AP) — Gradually but steadily, Americans are recovering their vast loss of wealth from the recession, thanks to larger stock portfolios.
Household net worth grew 2.2% in the July-September quarter, fueled by a rally on Wall Street that catapulted stock prices. And stocks have risen more since the new quarter began Oct. 1, further boosting wealth.
Those increases are lifting hopes for the economy, especially because Congress seems about to pass a package of tax cuts for most Americans. Both factors help: The stock gains make people feel wealthier. And the tax cuts put more spending money in their pockets.
Consumers' confidence and access to cash are vital because their spending fuels about 70% of economic activity. Last quarter, Americans boosted their spending at the fastest annualized pace in nearly four years.
Net worth is the value of assets such as homes and stocks, minus debts like mortgages and credit cards. It totaled nearly $55 trillion last quarter, the Federal Reserve said Thursday. The increase from July through September occurred even though the value of people's real estate holdings sank 3.7%.
U.S. net worth has risen far from its bottom during the recession: $49 trillion in the first quarter of 2009. Yet it would still have to rise an additional 20% to regain its pre-recession peak of $66 trillion. That's a reminder of the magnitude of wealth Americans lost to the recession.
And despite the latest gains, economists think it will take at least until the middle of the decade for people to regain all their lost wealth. In part, that's because they expect homes and other real estate values in many areas to decline further.
"Home prices are going to get weaker over the next year as more foreclosed homes get dumped on the market," said Scott Hoyt, senior director of consumer economics at Moody's Analytics.
Average household wealth rose to $425,177 last quarter. Adjusted for inflation, the average U.S. household's net worth has risen nearly 8 percent from its early-2009 bottom. But it's still about 23% below its peak of $553,685 three years ago.
Net worth had suffered a setback in the April-June quarter, when it fell 2.6%. That was the first quarterly decline since early 2009. At the time, investors' fears over the European debt crisis had diminished stock portfolios.
Since then, stocks have surged. Last quarter, the value of households' stock portfolios reached $7.8 trillion. That's an increase of nearly 14% from the April-June quarter.
In Naugatuck, Conn., David Savage, 51, a manager of a demolition equipment company and a married father of two teenagers, has seen his family's net worth rise about 5 percent in the past year. The increase is due mostly to investment gains from mutual funds.
"I am happy to see my mutual funds finally recovering from some horrible returns over the last couple of years," Savage said.
The value of Savage's 401(k) account has risen, largely because of his employer's contributions. Yet his family's net worth is still well below where it stood before the financial crisis.
Even so, Savage plans to put some of his money to work in the stock market. "I'm looking at it as buying at a discount," he said.