U.S. household wealth rose by 1.2% to $58.1 trillion during the first quarter of 2011, according to the most recent report by the Federal Reserve. In addition, U.S. households reduced their debt load, making it the 12th consecutive quarter that this has occurred. Consumer credit also rose for the second straight quarter after eight consecutive quarters of declines.
The data showed that the up-tick in wealth came from gains from stocks and other investments while the decline in real estate values continued to plague U.S. wealth formation. Household wealth has still not recovered from its high of $64.2 trillion at the end of 2007 before the collapse of the housing market.
The decline in the debt figures reflect sluggish activity in the housing market with mortgages down 3.4%. Foreclosure or mortgage modification also contributed to the decline in overall debt. Nevertheless, some analysts noted that the reduced debt burdens may put consumers in a better financial position to increase borrowing and open new credit accounts. Predominantly, the loans that consumers are drawn to these days are auto loans and student loans. In total, the consumer debt level increased at an annual rate of 2.4%, which is the second straight quarterly increase after decreasing for eight months in a row.
Businesses Borrowing More Too
Companies in the U.S. are borrowing more money too. The Federal Reserve tracks the flow of funds between American businesses, creditors and spending in general. On a quarterly basis, the Fed reports that business debt increased by 4%. Increased borrowing tends to be an indication that consumers and businesses feel that the economy is moving towards stable ground.
At the same time, businesses also reported a record $1.91 trillion in cash. While the large cash balances may indicate apprehension over the economy near-term, it does provide liquidity for growth and acquisitions in the future. At the end of 2004, business cash reserves totaled about $1.27 trillion.
Local and state governments cut their debt by 2.9% in the first quarter after expanding debt by 7.9% in the previous quarter. The federal debt increased by 20.2% during 2010 and grew 7.8% in the first quarter of 2011.