Special Report Issue #1: America's Money - This week on CNN

Americans $1.7 trillion poorer

Americans' net worth falls for the second straight quarter as home and stock prices decline, but it may not hurt consumer spending, experts say.

By Tami Luhby, CNNMoney.com senior writer
Last Updated: June 5, 2008: 4:12 PM EDT

NEW YORK (CNNMoney.com) -- Americans saw their net worth decline by $1.7 trillion in the first quarter - the biggest drop since 2002 - as declines in home values and the stock market ravaged their holdings.

Meanwhile, the amount of equity people have in their homes fell to 46.2%, the lowest level on record.

The net worth of U.S. households fell 3% to $56 trillion at the end of March, according to the Federal Reserve's flow of funds report, which was released Thursday.

The value of real estate assets owned by households and non-profits declined by $305 billion, while financial assets fell by $1.3 trillion, led mainly by a $556 billion drop in stocks and a $400 billion decline in mutual funds.

The first quarter's decline follows a $530 billion drop in wealth in the fourth quarter of 2007. Until then, net worth had been rising steadily since 2003, climbing nearly 31% over those five years. During the bear market of 2000 through 2002, household's net worth dropped 6.2%.
Spending more

The recent declines, however, may not affect consumer spending, said Michael Englund, senior economist with Action Economics. Americans have actually spent more in recent months, particularly at the gas pump as fuel prices soared.

Americans "are spending everything in their wallet and borrowing more," Englund said. "But because the pump takes so much more of their dollars, they are buying fewer T-shirts."

Still, as people feel begin to feel poorer, the growth in consumer spending may slow, said Scott Hoyt, senior director of consumer economics at Moody's Economy.com.

"When wealth goes down, consumers will cut back some," he said. "There will be a drag on spending."

Household debt grew by 3.5% in the first quarter, down from 6.1% in the fourth quarter. The growth of home mortgage debt, including home equity loans, cooled to an annual rate of 3%, less than half the pace of 2007. Consumer credit, which includes credit cards, rose at an annual rate of 5.75%, the same as the 2007 pace.

The fact that consumers continue to borrow against their homes, even as they decline in value, shows how troubled Americans are.

"It signals how consumers are struggling to get cash," Hoyt said.

The Fed's report comes at a time of growing anxiety about the nation's economic health. Many economists believe the country is already in a recession, if not headed toward one.

In the first four months of the year, employers cut 260,000 jobs, and on Friday the government is expected to report an additional 60,000 losses in May. Gross domestic product rose at a sluggish annual rate of 0.9% in the first three months of the year, when adjusted for inflation.

Whether household wealth will be up or down at the close of 2008 depends more heavily on the stock market's performance than on housing values, since financial assets account for about two-thirds of net worth. Because the stock market has been rising in recent months, Englund is expecting a 6% gain in net worth for the second quarter.

As for the year?

"The jury is really still out," said Englund, adding that wealth could end up flat for 2008.

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First Published: June 5, 2008: 12:10 PM EDT

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Source: http://money.cnn.com/2008/06/05/news/economy/fundflows/index.htm

My friend we might not be money wise, but still are family wise. Cheer up. Our wives are still putting the meals on the tables. We know whats really valuable. Our conservation at the airport Friday is still fresh in my mind.

The unfortunate thing here is that unemployment just puts more desperate people behind the wheel of city taxi's. I always use more caution when the so called "students" are out to drive full time. Desperate people that were unemployed and have debt are not much better.......

Who are you talking to? Tami Luhby is with CNN. Did I miss something?

Responding to: "Our conservation at the airport Friday is still fresh in my mind."

I think Mr. R. is "addressing" the person who posted the report form the CNN website.

If you noticed gas prices this morning, you are worth even less than we were when it was posted.

Are you better off than you were last year?

Is the Mayor, the Commissioner, The Transportation Committee, The City Council of Chicago better off?

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Replying to:

Who are you talking to? Tami Luhby is with CNN. Did I miss something?

Responding to: "Our conservation at the airport Friday is still fresh in my mind."

I wrote: If you noticed gas prices this morning, YOU are worth even less than we were when it was posted.

It should have been: If you noticed gas prices this morning, WE are worth even less than we were when it was posted.

I am sure Mr. Mirtz is improving with age, like most of us.

I was just responding to the original poster of this article. We had discussed it at the airport. Again, lets not forget about what's really important to us all and what we need to make things right. Family is #1 period. We need money to provide for ours. We get this from the meter. We need a rate increase. Working 16 hours a day to provide isn;t fair. We need a FAIR FARE FROM THE CITY!

Like the old saying goes, I can't wait until tomorrow because I get better looking every day.

Responding to: I am sure Mr. Mirtz is improving with age, like most of us.