U.S. household debt fell for the seventh straight quarter in the first three months of 2010 as Americans continued to respond to the recession's fallout.
Meantime, a quarterly Federal Reserve report Thursday showed the net worth of Americans rose a fourth straight quarter in January-March, but the stock market has since fallen on the back of Europe's debt crisis.
Household debt fell at a 2.5% annual rate to $13.54 trillion in the first quarter. The household sector's debt level, which includes both consumer credit and mortgage loans, remained at about 20% of total assets in the first quarter. The ratio is down from a peak of around 22.5% in the first quarter of 2009, but still well above a ratio of about 15% in the mid-1990s.
Excessive debt-financed spending was one of the causes of the recent recession. After living beyond their means, Americans were stung and are paring back their debt. While that may be good for the long-term health of the economy, it has kept a lid on consumer spending, a key engine for economic growth.
Federal Reserve Chairman Ben Bernanke Wednesday said he expects the U.S. economy to continue recovering from the worst recession since the 1930s only slowly, with consumer spending growing at just a moderate pace.
The Fed report showed that U.S. households' total net worth, meantime, climbed 2%, to $54.57 trillion.
Household net worth is assets, such as home equity, minus liabilities, such as mortgage debt. The gain in wealth came as holdings in corporate equities and mutual funds picked up.
But stock prices have since fallen as investors worried over fiscal problems in Europe, making a dent in the wealth of Americans as they try recovering from the deep recession and financial crisis. The S&P 500 index is down about 10% from the start of April.
The Fed's "Flow of Funds" data showed U.S. nonfinancial debt growth accelerated for the first time in three quarters. It climbed 3.5%, compared with the fourth quarter's 1.3% gain. Household debt fell harder but business debt was flat after a 3.5% drop in the fourth quarter.
Household net worth rose to about 4.92 times disposable personal income in the first quarter from a fourth-quarter level of about 4.86 times income.
By contrast to falling household debt, the government kept up with heavy borrowing to finance economic stimulus measures. The federal government's debt grew at a 18.5% rate in the first quarter, up from the fourth quarter's growth of 12.6%. State and local government debt rose 4.3%, compared with 4.6% in the third quarter.