Household Wealth Is Up and More People Are Employed but Spending Still Lags

Household wealth hit a new high in 2013 Q1 and employers added 10,000 more jobs than expected in May - all signs of an improving, if not yet robust economy.

USA Today reported some interesting details surrounding the household wealth numbers.

American households have reclaimed all the wealth lost in the housing and stock market busts – not counting inflation.

When inflation is factored in, however, average families recovered only 63 percent of the wealth they lost. Inflation erased 10 percent of the growth.

Affluent households benefited most since the wealthiest 10 percent of families own 80 percent of stocks. Stocks and mutual funds accounted for about half the $3 trillion increase in wealth reported by the Federal Reserve according to USA Today.

Household wealth, or net worth, is calculated by adding up assets including homes, stocks, and cash, then subtracting mortgages and other debt.

Overall, family wealth reached an all-time high of $70.4 trillion, according to the Federal Reserve. The number of households increased by 3.8 million (to 115 million) in the five years since 2007, meaning that the wealth gain is spread among more families.

The Federal Reserve said that total household debt at the end of Q1 was $12.8 trillion, a 0.6 percent drop in the annual rate. Both automobile loans and student loan balances grew during the period.

Total business debt reported was $12.9 trillion and government debt totaled $14.9 trillion.

Another USA Today report contained both good news and bad news. While the number of jobs added in May, 175,000, was 10,000 more than expected, the unemployment rate rose from 7.5 percent to 7.6 percent.

The Labor Department indicated this was due to an increase in the labor force, including people working and looking for work, to 420,000.

It was feared that $85 billion in federal budget cuts, the payroll tax increase, and recession in Europe might have a negative impact on the job market. It appears, however, that the slowly recovering housing market, improved individual household finances, and Federal Reserve interest rate controls have largely offset those concerns. At least so far.

Gains in family wealth and a more optimistic job market outlook have not yet translated into significant increase in consumer spending, according to Moody's Analytics economist Scott Hoyt. One reason for this, Hoyt told USA Today, is that Americans are still 11 percent poorer, on average, than in 2007, after adjusting for inflation and population growth.

The simple fact is that the recession cost American families $15.6 trillion in wealth. Despite the recent gains, that still represents a significant loss, both monetarily and psychologically.

Paul Edelstein, director of financial economics at IHS Global Insight said, "The hope is that consumption will follow this [gain]. Adding, "We're piling up assets but not necessarily using them.''