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Feel richer? The government says you are.
American household wealth climbed to a record high in the final quarter of last year, according to data released March 8 by the Federal Reserve.
The bad news: The data show U.S. households continued to fall deeper into debt.
Stock gains were the principal reason for the surge in household net worth, the Fed said in a quarterly statistical report.
"Household net worth –- the difference between the value of assets and liabilities –- amounted to $55.6 trillion at the end of the fourth quarter of 2006," the report said. "Household net worth rose $1.4 trillion last quarter, with most of that increase accounted for by gains on direct and indirect holdings of corporate equity."
Real estate gains also contributed to the rising level of household wealth, which grew by 7.4% in 2006, the report said. The annual pace was slightly slower than the 7.9% increase registered in 2005.
Household debt, meanwhile, grew by 8.6% last year, down from 11.7% in 2005. The Fed attributed the deceleration to "much slower growth of home mortgage debt."
Home mortgage debt growth slowed to 8.9% last year, the smallest increase in six years and considerably below the 13.8% increase in 2005.
After a five-year boom, the housing market fell into a deep slump last year. Sales cooled. So did home prices, which had been galloping ahead and making consumers feel wealthier and more inclined to spend.
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Holding up fairly well
Economists said Thursday's report suggests households' finances are holding up fairly well to any strains caused by the troubled housing market and some sluggishness in overall economic growth. Analysts said that's because the jobs climate remains in good shape and that income growth has picked up."Slower growth in some of the nation's highflying housing markets was not enough to send net worth south in the fourth quarter," said Gina Martin, an economist at Wachovia. "Instead, household balance sheets continued to improve, as growth in liabilities continued to slow while growth in assets held steady."
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One risk facing the economy is that the housing slump will take an unexpected turn for the worse, a development that likely would cause consumers to clamp down. That could spell trouble for overall economic activity.
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