U.S. household wealth posts record loss in fourth-quarter amid stock rout

WASHINGTON (Reuters) – U.S. household wealth fell by a record $3.8 trillion, or 3.5 percent, at the end of 2018, and corporate bond issuance plummeted as a global market rout threatened to weaken a near-decade old recovery, the Federal Reserve reported on Thursday.

In percentage terms, it was the worst quarterly blow to U.S. household finances since late 2008, when the U.S. was in the midst of a deep global recession and household net worth fell roughly 5.9 percent in one three-month span.

But in terms of the wealth lost on a dollar basis, at least on paper, it exceeded the $3.6 trillion decline in the fourth quarter of 2008 for the biggest loss on record.

Corporate bond issuance for the year also reflected crisis-era conditions, with the worst full-year performance since 2008 as well. Overall corporate borrowing did rise as credit flowed from other sources.

Still, those results from the Fed’s quarterly Flow of Funds report shed light on the financial sector tremors that prompted Fed policymakers to put further rate hikes on hold as they assessed the damage.

Amid widespread fears about the impact of a global trade war, slowing growth, rising central bank interest rates, and other risks, Fed officials also worried that declining household wealth would translate into less spending and slower economic growth.

Those fears appear at least partially warranted as retail sales and business investment weakened at year’s end.

The report said household net worth fell from around $108 trillion to $104.3 trillion over the final months of the year, a drop that included a roughly 14 percent fall in the value of stocks and mutual funds. The value of household real estate rose slightly.

Stock prices, however, have significantly pared the losses from the fourth quarter, with the S&P index up about 9 percent this year.

About $300 billion disappeared from the cash and liquid holdings of nonfinancial corporations in the fourth quarter amid the equity slump and tightening credit conditions.

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