Household Net Worth and Debt Increase

U.S. household net worth rose to a record in the fourth quarter even as consumers took on more debt and companies piled up cash for investing, Federal Reserve figures Thursday showed.

Household net worth rose to a record $52.1 trillion in the fourth quarter from $50.96 trillion in the third quarter as rising property prices helped counter a further increase in household debt, according to the Fed’s quarterly Flow of Funds report.

U.S. companies continued to earn more money than they spent on plants and equipment in the fourth quarter, suggesting they have the means to boost investing in coming months. The so-called financing gap -- the amount of money used for capital spending less what companies raised internally -- was a minus $166.8 billion in the fourth quarter. The Fed revised the third quarter financing gap to a minus $237.7 billion, a record, from $197.5 billion.

Rising corporate investment may keep the economy growing as the housing market cools and consumer spending slows, economists said.

The Fed said U.S. consumer, business and government debt rose at a 9.5% annual rate in the fourth quarter after a 9.6% gain the prior three months. This measure of debt excludes borrowing by banks.

Federal government borrowing rose an annual 7.8% in the fourth quarter after a 5.1% increase, while borrowing by state and local governments increased 9.6% after a 13.1% gain, the Fed said.

Business borrowing increased 8.3% after a 7.5% rise the previous quarter, while household borrowing climbed 11% after a record 12.4% increase.

The increase in household borrowing was more than offset by a rise in assets. Real estate assets held by households and nonprofit organizations increased to $21.6 trillion in the fourth quarter from $20.9 trillion in the third, while owners’ equity in real estate rose 16% to $11.2 trillion.

The report shows money continuing to flow out of traditional professionally managed pension plans and into the hands of individuals managing their own money as more companies, such as General Motors Corp., freeze or end pensions.

Holdings in traditional defined-benefit plans declined 2.3% to $1.8 trillion in 2005, while holdings in defined contribution plans, such as 401(k) plans, jumped 6.8% to $2.8 trillion. More than $3 trillion is held in individual retirement accounts. Data on those holdings lag the Fed’s report by six months.

Mutual fund assets climbed to $4.2 trillion from $4.1 trillion.