Recession wipes out $1.3 trillion US wealth in first quarter

WASHINGTON – The brute force of the recession earlier this year turned back the clock on Americans’ personal wealth to 2004 and wiped out a staggering $1.3 trillion as home values shrank and investments withered.

Net worth, or the value of assets such as homes, checking accounts and investments minus debts like mortgages and credit cards, declined 2.6 percent in the first three months of the year, the Federal Reserve said.

Those months were some of the worst of the recession so far for job losses, and the stock market sank to its lowest point of the year in March. Since then, some signs suggest the economy is stabilizing.

Still, partly because of the carnage earlier in the recession, Americans are putting plans on hold until the economy improves.

Even if things improve, such a dramatic evaporation of wealth will probably make Americans more thrifty down the road, said Scott Hoyt, senior director of consumer economics at Moody’s Economy.com.

“The bulk of consumers alive today have not experienced declines in wealth like this,” Hoyt said. “They are already turning thrifty, and it will stay that way beyond the short term. This has been a significant learning experience.”

Americans’ personal savings rate zoomed to 5.7 percent in April, the highest since 1995. And the amount in savings — $620.2 billion — was the most on record dating to January 1959.

Even if the economy recovers and starts to thrive again, he said he probably won’t break out the credit cards again. “It’s really not about stuff,” he said. “Stuff is nice, but life is not about how much more stuff can we get.”

According to the Fed report, the biggest damage to wealth in the first quarter came from the sinking stock market. The value of Americans’ stock holdings dropped almost 6 percent from the final quarter of last year — in a market that was already brutal.

The Wall St. slide that began in 2007 wiped out more than half the value of the US stock market, but investments have bounced back. Since the end of the period covered by the Fed report, the Standard & Poor’s 500 stock index is up 20 percent.