Thanks to a rebounding stock market, Americans' household wealth increased by $2.1 trillion last year, even as high unemployment and a sagging real estate market weighed down the economic recovery.
At the end of last year, American households saw their net worth rise 3.8 percent over the previous year to $56.8 trillion, according to figures released this week from the Federal Reserve. The stock market gains were undercut by a 1.6 percent drop in the value of Americans' real estate holdings over the last quarter of 2010. All told real estate wealth plunge fell by $244 billion over the same period 2010, an improvement of a $629 billion drop during the prior quarter.
In 2009, as the economy struggled to shake off the effects of the financial crisis, household wealth fell by 9 percent, a decrease of $5.1 trillion.
This year, however, has been quite different.
"The stock market is performing very well, it rebounded in the third quarter," Greg Daco, senior economist at IHS Global Insight. "As a result, there's been a big gain in assets for households," he added. The value of corporate equities owned by American households, for example, increased by $1 trillion.
After taking a big hit during the financial crisis, 91 percent of 401K account balances are near their 2007 level, said Jack VanDerhei of the Employee Benefit Research Institute.
"Some accounts might lead you to believe everybody's running for cover," said VanDerhei. But there was no mass migration away from 401Ks and many accounts were recovering, he said. "Psychologically, it's important because it gives people the reinforcement that they need that they are actually building something."
Corporate profits have risen steadily since 2009, jumping 17 percent since 2009, according to the Fed report. Businesses are also sitting on 1.9 trillion in cash and liquid assets, the highest level since 1984. Some economists argue that in order to create jobs, companies will have to start using that cash to hire new workers and expand.
Many companies were not confident enough in the recovery to start spending again, said IHS Global Insight economist Daco. "Cash reserves have grown exponentially since the recovery because of the desire for companies to protect themselves in case things turn bad again," he said.
But, Daco said, this trend will come to end soon. "You can't go on forever wringing the maximum productivity from your employees."
The decline in the official unemployment rate, which fell to 8.9 in February, has meant slowly growing optimism about jobs and salaries, economists said, leading to 4 percent increase in consumer spending in the fourth quarter of 2010, the fastest pace since 2006. But economists warn that rising food and fuel prices could slow the pace of consumer spending.
Consumers also paid down debt, which fell 0.1 percent to $13.4 trillion at the end of last year, the lowest level since 2004. American households also continued to pay off mortgage debt, which fell 0.3 percent in the fourth quarter. But the total financial obligations of U.S. households rose 0.2 percent as Americans took on more auto loans and student loans.
Scarred by the lessons of the financial downturn, consumers are turning away from credit cards according to Daco, who found credit card usage on a downward trend over a few years. "The mentality is shifting," he said. "During the recession, consumers realized it wasn't safe to take on excessive amounts of debt, so people paid off balances and took on less debt."
On a national scale, government debt expanded by 14.6 percent in the fourth quarter of 2010, down from 16 percent growth in the quarter before. Municipal debt, however, expanded at a faster rate, growing 7.9 percent in the last part of 2010 compared with 5.4 percent in the quarter before, emblematic of a growing crisis in American towns and cities.
Our 2024 Coverage Needs You
It's Another Trump-Biden Showdown — And We Need Your Help
The Future Of Democracy Is At Stake
Our 2024 Coverage Needs You
Your Loyalty Means The World To Us
As Americans head to the polls in 2024, the very future of our country is at stake. At HuffPost, we believe that a free press is critical to creating well-informed voters. That's why our journalism is free for everyone, even though other newsrooms retreat behind expensive paywalls.
Our journalists will continue to cover the twists and turns during this historic presidential election. With your help, we'll bring you hard-hitting investigations, well-researched analysis and timely takes you can't find elsewhere. Reporting in this current political climate is a responsibility we do not take lightly, and we thank you for your support.
Contribute as little as $2 to keep our news free for all.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
The 2024 election is heating up, and women's rights, health care, voting rights, and the very future of democracy are all at stake. Donald Trump will face Joe Biden in the most consequential vote of our time. And HuffPost will be there, covering every twist and turn. America's future hangs in the balance. Would you consider contributing to support our journalism and keep it free for all during this critical season?
HuffPost believes news should be accessible to everyone, regardless of their ability to pay for it. We rely on readers like you to help fund our work. Any contribution you can make — even as little as $2 — goes directly toward supporting the impactful journalism that we will continue to produce this year. Thank you for being part of our story.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
It's official: Donald Trump will face Joe Biden this fall in the presidential election. As we face the most consequential presidential election of our time, HuffPost is committed to bringing you up-to-date, accurate news about the 2024 race. While other outlets have retreated behind paywalls, you can trust our news will stay free.
But we can't do it without your help. Reader funding is one of the key ways we support our newsroom. Would you consider making a donation to help fund our news during this critical time? Your contributions are vital to supporting a free press.
Contribute as little as $2 to keep our journalism free and accessible to all.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
As Americans head to the polls in 2024, the very future of our country is at stake. At HuffPost, we believe that a free press is critical to creating well-informed voters. That's why our journalism is free for everyone, even though other newsrooms retreat behind expensive paywalls.
Our journalists will continue to cover the twists and turns during this historic presidential election. With your help, we'll bring you hard-hitting investigations, well-researched analysis and timely takes you can't find elsewhere. Reporting in this current political climate is a responsibility we do not take lightly, and we thank you for your support.
Contribute as little as $2 to keep our news free for all.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
Dear HuffPost Reader
Thank you for your past contribution to HuffPost. We are sincerely grateful for readers like you who help us ensure that we can keep our journalism free for everyone.
The stakes are high this year, and our 2024 coverage could use continued support. Would you consider becoming a regular HuffPost contributor?
Dear HuffPost Reader
Thank you for your past contribution to HuffPost. We are sincerely grateful for readers like you who help us ensure that we can keep our journalism free for everyone.
The stakes are high this year, and our 2024 coverage could use continued support. If circumstances have changed since you last contributed, we hope you'll consider contributing to HuffPost once more.
Support HuffPostAlready contributed? Log in to hide these messages.