US households experience 9% drop in wealth

This really isn't any surprise for those of us who have been experiencing increased health care costs and dropping wages, but it is more widespread than expected.

U.S. households suffered a record 9 percent drop in wealth in the fourth quarter 2008 as a deepening recession battered confidence and finances, Federal Reserve data showed yesterday.

Household net worth dropped by $5.1 trillion from the prior quarter to $51.5 trillion. For the full year, net worth dropped by $11.2 trillion, reflecting steep declines in the housing and stock markets.

The declines in household net worth were the largest since quarterly and annual records began in 1951 and 1946, respectively, the Fed reported.

Since a second-quarter 2007 peak of $64.4 trillion, household wealth has dropped by about 20 percent, effectively wiping out four years of gains. That has put a chill on consumer spending and added to Americans' anxiety about their economic well-being.

Michael Feroli, an economist with JPMorgan in New York, called the $5.1 trillion quarterly drop a "showstopper."

"Given where the S&P 500 [stock index] is now and recent house price data, we estimate consumers have lost about another $2.5 trillion in the first quarter of the year," he said.