WASHINGTON (AP)—Americans are climbing further out of the hole they sank into during the Great Recession.
A stock rally at the end of 2011 helped rebuild more of their lost wealth—a trend that carried into 2012. Households responded by borrowing more for the first time since the financial crisis began, even as their home values fell further.
Americans’ wealth rose 2.1 percent to $58.5 trillion in the October-December quarter, the sharpest gain in a year, the Federal Reserve reported Thursday. Still, it would have to rise an additional 13 percent to return to its pre-recession peak.
Driving the gains were stock portfolios, which surged nearly 10 percent in the fourth quarter. And stocks have since risen further. Since early October, the Standard & Poor’s 500 index has jumped 24 percent.
Neerja Pahwa is sensing a difference.
Pahwa, a flight attendant and fragrance consultant from St. Louis, still hasn’t recouped all the investment losses she suffered during the recession. But she now feels comfortable enough about her finances to eat out and stop by Starbucks more frequently. She recently made a down payment on a retirement home in Florida.
“Things are looking brighter and sunnier,” said Pahwa, 64, who hopes to retire next year—if the economy keeps improving. “I don’t have too much in my pocket. But I know it’s coming. Things are only going to get better.”
Household wealth, or net worth, reflects the value of assets like homes, bank accounts and stocks, minus debts like mortgages and credit cards. It bottomed during the recession at $49 trillion in the first quarter of 2009. It’s still well below its pre-recession peak of $66 trillion.
The Fed’s quarterly report documents most of the financial transactions that occur in the United States.
Greater net worth tends to boost the economy. When people feel wealthier, they typically spend more. Businesses respond by stepping up plans to hire and expand.
Arash Shirazi of Washington, D.C., is spending again after cutting costs during the recession. He says his portfolio has nearly recouped all its losses. Now he’s planning to fly to Paris on business and thinking about expanding his music and talent agency.
“Things are getting better,” said Shirazi, 37. “I’m not going on vacations or buying new cars. But I’m definitely starting to spend a little more.”
Corporations are also wealthier. They held a record $2.2 trillion in cash at the end of the year, up from $ 2.1 trillion at the end of September.