By Steven K. Beckner

(MNI) – Americans may be less inclined to increase spending as
their wealth recovers from losses incurred during the financial crisis,
according to findings of a Federal Reserve Board survey released
Thursday.

The survey also finds that, as had been suspected, Americans have
increased their “precautionary savings” in response to declines in
household wealth.

Such behavior is likely to act as “a brake on a reviving economy,”
write Fed staffers Jesse Bricker, Brian Bucks, Arthur Kennickell, Traci
Mach and Kevin Moore, who conducted the survey.

Wealth losses were not uniform, but the Fed found that over 60% of
families saw their wealth decline over the two-year period of 2007-09.

However, “a sizable fraction of households experienced gains in
wealth, while some families’ financial situation changed little, at
least on net,” according to the survey conductors.

“The data show signs that families’ behavior may act in some ways
as a brake on reviving the economy in the short run,” they write, citing
two forces that will tend to lead to that result.

“First, a large proportion of families in all wealth groups and
across the range of changes in wealth expressed the need for greater
precautionary savings,” write Bricker and company. “In general, compared
with families with relative losses, the families with relative gains
appeared more pessimistic and cautious before the crisis, and in the
2009 survey they remained cautious even though their wealth had
increased.”

“Second, the data show a tendency for families to respond
asymmetrically to changes in wealth,” they continue. “Overall, it
appears that families may be relatively reluctant to spend more when
asset prices rise and may more readily reduce spending when asset prices
fall.”

The Fed survey found that “changes in wealth appear to stem from
changes in asset values more so than changes in the composition of
families’ portfolios or their outstanding debt.”

It found that “changes in the values of homes, stock, and business
equity appear to have been particularly important determinants of
changes in many families’ wealth.”

“The economic experiences of families that might have been seen as
financially vulnerable in 2007, by and large, did not differ
dramatically from those of other families, except for families with high
debt payments relative to income, who were more likely to have had
comparatively large declines in wealth,” the researchers write.

And they say “families appear more cautious in 2009 than two years
earlier, as most families reported increased levels of desired buffer
savings, and many expressed concern over future income and employment.”

** Market News International **

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