WASHINGTON -- Americans' wealth declined this past 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.
The combination could slow an already weak economy because it implies that families have less to spend and businesses are reluctant to expand. Household net worth dropped 0.3 percent to $58.5 trillion in the April-June quarter, according to the Federal Reserve's Flow of Funds report released Friday. The decline 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 held a record $2 trillion in cash at the end of June, an increase of 4.5 percent from the January-March quarter.
Consumers already are struggling with high unemployment and meager pay raises. When people feel poorer, they spend less. That slows growth. Businesses respond by cutting back on hiring and expansion plans. It can become a cycle.
Net worth is expected to fall even 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 also reacted to lawmakers' battle over raising the government's borrowing limit and Standard & Poor's downgrade of long-term U.S. debt.
"August put a big dent in whatever confidence consumers had left," said Greg McBride, senior financial analyst at Bankrate.com. That's largely why retail sales were flat last month, he added.
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 due almost entirely to one of the fastest bull markets in history. Stocks began to recover in the spring of 2009 and doubled in value by April of this year, according to the S&P 500 index.
But Americans' wealth has taken a hit since the second quarter, which was the period covered by the Fed report. The S&P index has tumbled 11 percent since its April 29 peak and 8 percent since the end of the quarter. That likely means an even larger drop in household net worth in the July-September quarter.
The likely drop in wealth comes at the same time that incomes are stagnating, particularly for middle- income households. Average household income, adjusted for inflation, fell 6.4 percent last year from 2007, the year before the recession, the Census Bureau said earlier this week.
Americans also have less equity in their homes. The average homeowner has just 38.6 percent equity, down from 61 percent a decade ago.