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Fed reports drop in household wealth during third quarter

Jan 05, 2012 Philip Burgess

American households scaled back their debt for the 13th straight quarter during the July-September period, according to data released this week by the U.S. Federal Reserve. The report shows household net worth fell 4 percent to reach $57.4 trillion in the third quarter, marking the sharpest drop since the fourth quarter of 2008. On Wednesday the fed reported consumer credit in October rose to the highest level in two years. Meanwhile, household debt fell at an annualized rate of 1.2 percent. That figure was driven by a 1.8 percent dip in mortgage debt, which offset a 1.2 percent hike in consumer credit. "Lower net worth can hurt the economy," the Associated Press reported Thursday. "When people feel poorer, they spend less. That slows growth. Businesses typically then cut back on hiring and expansion." Business debt also expanded in the third quarter, with firms outside of the financial sector borrowing 3.5 percent more. Finally, while state and local government debt remained flat, the federal government expanded its already substantial dues by an additional 14.1 percent.