March 13, 2009

U.S. household wealth falls sharply

U.S. household wealth plunged sharply in the fourth quarter of 2008, dropping three times as fast as the previous record in the category, the government said.

The Federal Reserve said household wealth fell by $5.1 trillion in the quarter, The New York Times reported Friday.

That amounts to a 9 percent decline, three times the 2002 drop of 3 percent that came after the dot-com bubble burst.

The fall is certain to impact the economy, two-thirds of which is driven by consumer spending. With less wealth, even top wage earners are likely curtail spending, an analyst said.

The bulk of the loss was in stocks, which fell sharply last year. The Standard & Poor's 500, for example, fell 23 percent, while home values dropped far less, falling 4 percent, the Times said.

The decline is apt to be more pronounced among the wealthy but the impact on the economy is still felt there. Although outnumbered by families with less income, the top 20 percent of wage earners outspend the bottom 60 percent, Tobias Levkovich, an equity strategist at Citigroup reported.

And, when their wealth is mauled, they are not particularly interested in spending, Levkovich said to the Times.