Americans’ net worth sinks 17.9%; spending pullback likely
As our economy corrects itself after years of mismanagement by our leaders in government we are confronted with some obvious facts. The Federal Bailout is helping the banks, investment firms and the most trusted firms on Wall street, but what about our working class. The American working class is feeling the crunch harder than ever. The Bankruptcy attorneys at the Law Firm of Fears and Nachawati are standing by to assist you during this troubling time.
By Barbara Hagenbaugh, USA TODAY
Americans’ net worth plunged a record 17.9% in 2008 as the value of their homes, stocks and other assets dropped swiftly, the Federal Reserve said Thursday in a report that did not bode well for consumer spending and the overall economy this year.
With net worth dropping so much, consumers are likely to focus on saving, not spending, as they realize they can’t rely on their homes and stock portfolios as ever-rising sources of income, says RDQ Economics senior economist Conrad DeQuadros.
Such saving, while good in the long run, will likely prolong the economic slump. Consumer spending drives more than two-thirds of U.S. economic activity.
"This does point to further weakness in consumer spending going forward," DeQuadros says.
Retired engineer Gerald Sullivan, 58, says he isn’t eating out as often or going on vacation now that he’s seen the value of his 401(k) and his home sink.
"I was confident before that I was doing fairly well," says Sullivan of Venice, Fla. But, "I have no chance at all of recouping the money by the time I need it."
U.S. net worth, a measure of households’ assets minus their liabilities, such as debt, was $51.5 trillion in 2008, the lowest since 2003. The record annual drop in net worth, the first since 2002, accelerated as the year progressed. In the fourth quarter, household net worth dropped 9%, the biggest decline since quarterly records began in 1951, the Fed said.
Other details from the report:
•The value of household real estate fell for a second-consecutive year in 2008, declining 10.5%, the biggest drop on record. At $18.3 trillion, the total value of U.S. homes was the lowest in five years.
•Stock market wealth plunged a record 39.9% in 2008 to $5.5 trillion, the lowest since 1996.
•Corporate profits fell 10.8% in the September-December quarter and were down 8.8% for the year as a whole.
Consumers have been cutting back spending. In February, retail sales fell 0.1% after a 1.8% increase in January, the Commerce Department said Thursday.
"March will see a deeper, and broader-based, decline in consumer spending that will be repeated over subsequent months," Mission Residential chief economist Richard Moody says.
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