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U.S. household wealth regains pre-recession peak
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Mr. Riccadonna forecasts that the increase in home prices alone could boost consumer spending this year by roughly $110 billion — nearly offsetting the $120 billion cost of the Social Security tax increase.
The Fed report also showed that Americans are increasingly taking on more debt, enabling them to spend more. In the October-December quarter, household debt rose 2.4 percent. It was the sharpest gain in nearly five years.
And it marked a shift from when the recession ended in June 2009, after which many households focused on repaying debt rather than borrowing. Economists increasingly think that process, known as “deleveraging,” is ending.
“The drag from deleveraging is now a thing of the past,” Mr. Smith said. “Household credit is once again supporting growth.”
Mr. Smith noted that the two key trends in the Fed report — higher wealth and more consumer borrowing — are likely enabling people to spend more at a critical time: Social Security taxes increased this year for most workers. Someone earning $50,000 has about $1,000 less to spend in 2013. A household with two high-paid workers has up to $4,500 less.
And gas prices have risen sharply. The average price for a gallon is $3.72, roughly 44 cents more than when the year began.
“The combination of what we’re seeing in terms of wealth increases and higher household borrowing explains why spending has not fallen more in the face of higher taxes and gasoline prices,” Mr. Smith said.
Household finances are still improving, even with the increase in borrowing. Total household debt amounted to about 100 percent of after-tax income in the October-December quarter, down from 126 percent in 2007.
• Bernard Condon in New York contributed to this article.
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