Americans' wealth falls as companies' cash piles up

July-Sept. numbers likely to dip further

9/17/2011

WASHINGTON -- Americans' wealth declined this spring for the first time in a year, as stocks and home values fell. At the same time, corporations increased the size of their cash stockpiles.

That could slow a weak economy because businesses and consumers are spending less.

Household net worth fell 0.3 percent to $58.5 trillion in the April-June quarter, according to a Federal Reserve report released Friday. That followed three straight quarterly increases.

The value of Americans' stock portfolios fell 0.5 percent in the second quarter. Home values dropped 0.4 percent.

Corporations, meanwhile, held a record $2 trillion in cash at the end of June, a rise of 4.5 percent from the January-March quarter.

Declining wealth is the latest risk to an economy that has high unemployment and scant raises.

People spend less when they feel poorer. Businesses then cut back on hiring and expansion plans.

Net worth is expected to fall further in the July-September quarter because stocks plunged in late July and early August.

A key reason was, the government said, the economy barely grew in the first half of the year. Investors reacted to lawmakers' battle over raising the government's borrowing limit and Standard & Poor's downgrade of long-term U.S. debt. Overall, household wealth, which mostly consists of home equity, stock portfolios, and other savings, has risen 15 percent since the recession officially ended in June, 2009. The increase is almost entirely because of one of the fastest bull markets in history. Stocks have doubled in value over the past two years, according to the S&P 500 index.

But Americans' wealth has taken a hit since the second quarter, the period covered by the Fed report. The S&P index has tumbled 11 percent since its April peak, and 8 percent since the end of the quarter. That likely means a larger drop in household net worth in the July-September quarter.