Household Wealth Hits Record

The net worth of U.S. households and nonprofit organizations--the value of homes, stocks and other assets minus debts and other liabilities--rose about $1.4 trillion between April and June to $81.5 trillion, the highest level on record, according to a report by the Federal Reserve released Thursday. The figures aren't adjusted for inflation or population growth.

Overall household borrowing rose at an annualized 3.6% pace in the second quarter, the fastest rate since the first quarter of 2008. Much of that was driven by a sharp increase in consumer credit, including student loans, which grew 8.1%, stronger than the previous quarter's 6.5% pace. Even mortgage debt grew 0.4%, following two straight quarters of shrinking.

Economists hope rising asset values, falling unemployment and stronger household finances lead to more consumer spending, which accounts for roughly two-thirds of economic output. Recent reports on the nation's economic health have been mixed: Unemployment is falling faster than many expected, yet growth remains fitful thanks in part to weak income gains for most Americans.

That said, rising wealth can help the economy only so much. Most of the nation's wealth gains go to the affluent, who tend to own stocks and save their money, reducing the benefits for the overall economy. While real-estate values also improved, allowing more Americans to benefit, these gains were much weaker.

The value of stocks and mutual funds owned by households rose $1 trillion last quarter, Fed data show; the value of residential real estate grew a paltry $230 billion by comparison. Another gauge of Americans' wealth--U.S. net worth as a share of disposable income--remains below levels seen before the recession, the Fed data show. Still, the Fed report suggests rising wealth may finally be helping make Americans a little more comfortable adding to their debt loads.

Americans are borrowing a lot more these days to pay for college educations, and the nation's $1 trillion-and- rising student-debt tab is a major factor driving up overall borrowing. But Americans are now borrowing more using credit cards and auto loans, too

Meanwhile, Americans are making progress slicing their prior debt burdens and regaining equity in their homes, factors that also help them borrow and spend more.

Total U.S. household debt was about 107% of disposable income in the second quarter. A measure of owners' equity as a share of the value of real-estate holdings hit 53.6% in the second quarter. For most Americans, a home is their biggest asset, so the growing level of home equity suggests improvements in the economy are now reaching more Americans.