Stock rally helps regain wealth lost in recession

  • By Derek Kravitz and Dave Carpenter Associated Press
  • Thursday, March 8, 2012 8:38pm
  • Business

WASHINGTON — 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.

Arash Shirazi is spending again after cutting costs during the recession. He says his portfolio has “come back almost to what it was.” He’s even flying to Paris and thinking about growing his business.

“Things are getting better,” said Shirazi, 37, who owns a music and talent agency in Washington. “I’m not going on vacations or buying new cars. But I’m definitely starting to spend a little more.”

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.

“Consumers have been more willing to use credit cards for shopping, signaling renewed confidence in their financial and job prospects,” said Paul Edelstein, director of financial economics at IHS Global Insight.

That doesn’t mean that Americans are starting to significantly load up their credit cards again, financial planners and economic analysts say. Credit card debt remains well below its pre-recession level, as measured by a separate report released by the Fed Monday.

A survey of economists by The Associated Press last month found that Americans will gradually save less and borrow more, reversing a shift toward frugality that followed the financial crisis and start of the Great Recession.

Roughly half of U.S. households own stocks or stock mutual funds. Stock portfolios make up about 15 percent of Americans’ wealth. That’s less than housing but ahead of bank deposits, according to the Fed’s report.

Most stock wealth is owned by the richest Americans, who also account for a disproportionate amount of consumer spending. Eighty percent of stocks belong to the richest 10 percent of Americans. And the richest 20 percent represent about 40 percent of consumer spending.

Stocks have nearly doubled in three years. Thanks largely to that surge, about 95 percent of people with 401(k) retirement savings plans have more money in their accounts than they did at the peak of the market in October 2007, according to the Employee Benefit Research Institute in Washington.

The average 401(k) balance in accounts at Fidelity Investments, the nation’s largest 401(k) administrator, rose 8 percent in the fourth quarter. And stock gains this year have likely increased those accounts even further.

But it doesn’t mean that people are feeling carefree about their financial situations.

“Right now, many people are surprised their net worth is increased. And some aren’t even sure it’s real yet,” said Tom McGuigan, a certified financial planner at Oklahoma City-based Burns Advisory Group.

The Fed’s quarterly report documents wealth, debt and savings for corporations, governments and households. It covers most of the financial transactions that take place in the United States.

———

Carpenter reported from Chicago.

Talk to us

> Give us your news tips.

> Send us a letter to the editor.

> More Herald contact information.

More in Business

A closing sign hangs above the entrance of the Big Lots at Evergreen and Madison on Monday, July 22, 2024, in Everett, Washington. (Ryan Berry / The Herald)
Big Lots announces it will shutter Everett and Lynnwood stores

The Marysville store will remain open for now. The retailer reported declining sales in the first quarter of the year.

George Montemor poses for a photo in front of his office in Lynnwood, Washington on Tuesday, July 30, 2024.  (Annie Barker / The Herald)
Despite high mortgage rates, Snohomish County home market still competitive

Snohomish County homes priced from $550K to $850K are pulling in multiple offers and selling quickly.

Henry M. Jackson High School’s robotic team, Jack in the Bot, shake hands at the 2024 Indiana Robotics Invitational.(Henry M. Jackson High School)
Mill Creek robotics team — Jack in the Bot — wins big

Henry M. Jackson High School students took first place at the Indiana Robotic Invitational for the second year in a row.

The computer science and robotics and artificial intelligence department faculty includes (left to right) faculty department head Allison Obourn; Dean Carey Schroyer; Ishaani Priyadarshini; ROBAI department head Sirine Maalej and Charlene Lugli. PHOTO: Arutyun Sargsyan / Edmonds College.
Edmonds College to offer 2 new four-year degree programs

The college is accepting applications for bachelor programs in computer science as well as robotics and artificial intelligence.

FILE — Boeing 737 MAX8 airplanes on the assembly line at the Boeing plant in Renton, Wash., on March 27, 2019. Boeing said on Wednesday, Feb. 21, 2024, that it was shaking up the leadership in its commercial airplanes unit after a harrowing incident last month during which a piece fell off a 737 Max 9 jet in flight. (Ruth Fremson/The New York Times)
Federal judge rejects Boeing’s guilty plea related to 737 Max crashes

The plea agreement included a fine of up to $487 million and three years of probation.

Neetha Hsu practices a command with Marley, left, and Andie Holsten practices with Oshie, right, during a puppy training class at The Everett Zoom Room in Everett, Washington on Wednesday, July 3, 2024. (Annie Barker / The Herald)
Tricks of the trade: New Everett dog training gym is a people-pleaser

Everett Zoom Room offers training for puppies, dogs and their owners: “We don’t train dogs, we train the people who love them.”

Andy Bronson/ The Herald 

Everett mayor Ray Stephenson looks over the city on Tuesday, Jan. 5, 2015 in Everett, Wa. Stephanson sees  Utah’s “housing first” model – dealing with homelessness first before tackling related issues – is one Everett and Snohomish County should adopt.

Local:issuesStephanson

Shot on: 1/5/16
Economic Alliance taps former Everett mayor as CEO

Ray Stephanson will serve as the interim leader of the Snohomish County group.

Molbak's Garden + Home in Woodinville, Washington will close on Jan. 28. (Photo courtesy of Molbak's)
After tumultuous year, Molbak’s is being demolished in Woodinville

The beloved garden store closed in January. And a fundraising initiative to revitalize the space fell short.

Everett Mayor Cassie Franklin, Advanced Manufacturing Skills Center executive director Larry Cluphf, Boeing Director of manufacturing and safety Cameron Myers, Edmonds College President Amit Singh, U.S. Rep. Rick Larsen, and Snohomish County Executive Dave Somers participate in a ribbon-cutting ceremony on Tuesday, July 2 celebrating the opening of a new fuselage training lab at Paine Field. Credit: Arutyun Sargsyan / Edmonds College
‘Magic happens’: Paine Field aerospace center dedicates new hands-on lab

Last month, Edmonds College officials cut the ribbon on a new training lab — a section of a 12-ton Boeing 767 tanker.

Gov. Jay Inslee presents CEO Fredrik Hellstrom with the Swedish flag during a grand opening ceremony for Sweden-based Echandia on Tuesday, July 30, 2024, in Marysville, Washington. (Ryan Berry / The Herald)
Swedish battery maker opens first U.S. facility in Marysville

Echandia’s marine battery systems power everything from tug boats to passenger and car ferries.

Helion Energy CEO and co-founder David Kirtley talks to Governor Jay Inslee about Trenta, Helion’s 6th fusion prototype, during a tour of their facility on Tuesday, July 9, 2024 in Everett, Washington. (Olivia Vanni / The Herald)
State grants Everett-based Helion a fusion energy license

The permit allows Helion to use radioactive materials to operate the company’s fusion generator.

People walk past the new J.sweets storefront in Alderwood Mall on Thursday, July 25, 2024, in Lynnwood, Washington. (Olivia Vanni / The Herald)
New Japanese-style sweets shop to open in Lynnwood

J. Sweets, offering traditional Japanese and western style treats opens, could open by early August at the Alderwood mall.

Support local journalism

If you value local news, make a gift now to support the trusted journalism you get in The Daily Herald. Donations processed in this system are not tax deductible.