WASHINGTON – The stock market's sharp decline in August and September took its toll on Americans' finances in the third quarter. Household net worth fell for the first time in four years.
The Federal Reserve said Thursday that Americans' stock and mutual fund portfolios plunged $2.3 trillion in the July-September quarter. That far outweighed a $482 billion increase in home values. Overall, household net worth fell to $85.2 trillion from $86.4 trillion in the second quarter.
Less household wealth can cause consumers to pull back on spending to rebuild savings. That can slow growth since consumer spending drives more than two-thirds of economic activity. Americans were cautious about spending in October when retail sales barely rose and savings rates climbed.
Still, stock markets have mostly rebounded since September and there are few signs that consumers are sharply cutting back. Americans' net worth has grown 2.9 percent in the past year.
That rise may have left many Americans feeling wealthier, even with last quarter's decline.
Consumer spending rose at a healthy pace in the third quarter, when it was 3.2 percent higher compared with a year earlier. Steady job gains in the past three years are starting to finally boost paychecks a bit and fuel more shopping and car-buying.
Americans are also willing to take out more debt, which can be a sign of confidence in the economy, though the increase slowed from the second quarter. Consumer credit, which includes auto loans, student loans, and credit cards, increased at a solid 7.2 percent annual rate. Outstanding mortgage debt rose 1.6 percent.
The Dow Jones industrial average fell nearly 9 percent in August and September as fears intensified that China's economy was slowing more sharply than economists had anticipated. The dollar also continued to rise in value compared with overseas currencies, making U.S. exports overseas more expensive and imports cheaper.
The Fed's figures aren't adjusted for population growth or inflation. Household wealth, or net worth, reflects the value of homes, stocks and other assets minus mortgages, credit cards and other debts.