The numbers: Total U.S. household net worth fell $5.4 billion to $149.2 trillion in the January-March quarter, the Federal Reserve said in its latest “flow of funds” report.
This is the first decline in net worth after seven quarters of expansion.
Key details: The value of corporate equities held by households, including indirectly, declined by $2.96 trillion in the first quarter. The S&P 500 index fell about 5% in the first quarter as the Fed launched its plan to tighten financial conditions to bring inflation down.
This was partially offset by continued gains in the value of real estate, which rose $1.6 trillion.
On the liability side, household debt grew 8.3% in the first quarter to $18.3 trillion, after an 8% rise in the fourth quarter. Mortgage debt rose 8% to $12 trillion. Non-mortgage credit-card debt rose 8.7% to $4.5 trillion, buoyed in part by auto loans.
Total domestic nonfinancial business debt rose 8% to $18.9 trillion in the first quarter, up from a 6.8% gain in the October-December quarter.
Federal government debt increased 14.9% to $26.2 trillion in the first quarter, up from 10.6% in the fourth quarter. State and local government debt dropped 3% to $3.3 trillion after a 1.1% decline in the prior three month period.
Big picture: This is the first drop in wealth since the pandemic shut the economy, as the households received government assistance to protect the economy from a possible deep recession. Now the government is moving away from this stimulative stance. The financial well-being of U.S. households will be a key factor in whether the economy can withstand the sharp rise in interest rates planned by the Fed.
Market reaction: Stocks
turned lower in early afternoon trading on continued concern about higher inflation.