U.S. Household Worth Is Declining
By Shobhana Chandra
March 6, 2008

March 6 (Bloomberg) -- U.S. household wealth fell in the fourth quarter for the first time in five years and borrowing slowed as home values plunged and lenders restricted credit, Federal Reserve figures show.

Net worth for households decreased by $532.9 billion from the previous three months, the first decline since the third quarter of 2002, according to the Fed's quarterly Flow of Funds report today. Housing-related net worth dropped by $176.4 billion.

Lower home and stock prices and reduced access to loans are prompting Americans to spend less and are driving up foreclosures. A slowdown in consumer spending, which accounts for two-thirds of the economy, threatens to push the U.S. into a recession.

``Consumers are being squeezed from several directions,'' Fed Governor Frederick Mishkin said in a speech this week. Reduced household wealth, combined with a weakening job market and near-record fuel prices ``are likely to restrain spending growth in the period ahead.''

Owners' equity as a share of their total real-estate holdings fell to 47.9 percent, the lowest since quarterly records began in 1951, from 48.9 percent in the prior period.

The drop in housing-related household net worth from October through December followed a decline of about $600 million in the previous three months. Mortgage borrowing by households rose at a 5 percent annual pace, the smallest gain since 1997.

Borrowing Slows

Total borrowing by consumers, businesses and government agencies rose at an annual rate of 7.7 percent last quarter compared with an 8.8 percent gain the prior quarter, as borrowing by businesses climbed.

Total borrowing by households increased at a 5.6 percent pace, and business borrowing rose at an annual pace of 12 percent. Borrowing by state and local governments climbed at a 7.6 percent rate after rising 6.5 percent the prior quarter, the Fed said.

Federal government borrowing rose at an annual pace of 5.1 percent after increasing at an 8.8 percent rate.

To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net
Last Updated: March 6, 2008 12:38 EST

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