U.S. household wealth fell in the first quarter by $1.3 trillion as home and stock prices dropped, extending the biggest slump on record.
Net worth for households and non-profit groups decreased to $50.4 trillion from $51.7 trillion in the fourth quarter, according to the Federal Reserve’s Flow of Funds report today. The government began keeping quarterly records in 1952.
Americans are cutting back on spending as unemployment surges, home prices continue to drop and wealth evaporates, signaling any economic recovery will be slow to develop. The drop in net worth is one reason Americans are boosting savings, blunting the effect of the tax breaks and income supplements from the Obama administration’s stimulus plan.
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“This great recession has left a fundamental stamp on consumer psychology,” Michael Gregory, a senior economist at BMO Capital Markets in Toronto, said before the report. “Increasing savings, planning on working a little bit longer, more conservative investments, more conservative everything. Even if confidence comes back, I don’t think it will translate into spending like it would have” in the past.
Retail sales rose in May for the first time in three months, an increase driven almost solely by U.S. shoppers returning to automobile showrooms seeking bargains and the rising cost of gasoline, a report today from the Commerce Department showed.