Is household wealth improving?

Date posted: April 12, 2011

The Federal Reserve recently released a quarterly report on household wealth. Is it improving? N.C. State University economist Mike Walden responds.

“To set the stage before I answer the question, household wealth took a big, big beating during the recession. In fact, collectively households, in terms of their wealth, lost $15 trillion — 20 percent of all wealth. And this was not quite evenly divided, but almost so, between financial wealth and real estate wealth.

“Since the middle of 2009, when the economy did begin an improvement, we’ve been clawing our way back in terms of seeing wealth improve. In fact, we are about halfway there. So about, of that $15 trillion, we’ve recovered about between $7 and $8 trillion.

“So that’s certainly the good news. However, all this improvement in household wealth has been on the financial side — in terms of things like the stock market, mutual funds, C.D.s, et cetera. It’s not been on the real estate side.

“The other thing that households have been doing, of course, has been reducing debt. But the last report we had from the Federal Reserve on debt showed that households actually increased their debt over the last three months. Some will say that’s bad. But actually it can be interpreted as a good sign indicating that households are feeling better about the future and they are willing to go into debt in order to spend.”

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