Thursday 24th of September 2020

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American Debt Trouble Waning

Americans seem to be digging themselves out the financial hole they’ve been in since the recession began as net worth is on the rise. Household wealth was up $2.67 trillion in the third quarter, thanks to stock prices rising and home values increasing. This is the second increase in a row.

Still, it’s still too early to celebrate about the new $50.8 trillion level. The Federal Reserve Flow of Funds revised an earlier report about a decrease in wealth. Instead of the previous estimate of a $13 trillion loss, the value lost between the last three months of 2007 and the first quarter of 2009 actually was a record $17.5 trillion.

A look at the numbers gives a sense of the individual sectors that have been at work:

  • The U.S. economy was up 2.8 percent rate in the third quarter after dropping 3.8% during the preceding 12-month period. Some economists expect to see a 3% increase in the final quarter of the year and 2.6% for 2010.
  • After hitting a record low in Q1, homeowner equity as a part of total real estate holdings rose slightly to 37.6 percent in Q3 – up 1.8 percentage points from the quarter ending in June. Also, there was a revision of the record low in the first quarter to 33.5% from the 41.9 percent reported earlier. The central bank revised the value of real estate to 2000 levels, reflecting a deeper reduction in recent years than earlier estimates.
  • Borrowing by consumers, businesses and government agencies combined was up at an annual rate of 2.8 percent in the three-month period ending in June. While debt by businesses actually fell 2.6 percent, there was as 21% spike in borrowing by the federal government attributed to the economic stimulus plan. State and local government borrowing was up 5.1 percent.
  • Consumer debt fell at an annual rate of 2.6 percent in Q3. That’s the fifth time in a row there was a drop and the largest since the quarterly record reports started nearly 60 years ago.
  • New mortgages were down 3.6% from what was reported in the second quarter. Other types of consumer credit decreased 3.2 percent.

There were a number of reasons for the varied figures, all traced to the effects of the recession that began two years ago. Along with falling home and stock prices, lending became harder to get and unemployment climbed. Stocks lately have shot up and home prices are more stable. Still the jobless rate continues to be higher — at 10% last month – and the rules are more rigid when it comes to getting credit.