(Reuters) -A surging stock market powered U.S. household wealth to a record high of more than $154 trillion in the second quarter, aided by a rebound in property values, Federal Reserve data out on Friday showed.
Household net worth rose 3.7% to $154.28 trillion in the period from April through June from $148.79 trillion at the end of the first quarter, the Fed said in its quarterly snapshot of the balance sheets of households, businesses and federal, state and local governments.
The data showed households have fully recouped the wealth losses generated by a crushing bear market for stocks and weaker real estate values through much of last year as the Fed kicked off an aggressive campaign to rein in inflation through large, rapid-fire interest rate increases.
The Standard & Poor's 500 total return index, including reinvested dividends, delivered an 8.7% return in the second quarter, its largest gain since the final three months of 2021. The equity market's rally added $2.6 trillion to household net worth, accounting for nearly half of the overall wealth gain in the quarter.
Real estate was the other large driver, with property values rising for first time since the second quarter of 2022, contributing $2.5 trillion to the increase in net worth.
Household wealth at the end of June exceeded the previous record high of $152.49 trillion set in the first quarter of 2022 by about $1.8 trillion, or 1.2%.
HOUSEHOLD CASH DOWN
The data showed the size of households' cash warchests - comprising a variety of bank deposits and money market mutual fund holdings - continued to dwindle, declining for a record fifth straight quarter to $17.7 trillion.
A major contributor to the resilience of consumer spending, that stockpile at the end of June was down by $66 billion from the end of March and had fallen by more than $560 billion from its peak of nearly $18.3 trillion at the end of the first quarter of 2022.
Household savings habits continued to shift away from banks, which have been slow to keep up with the Fed's rate hikes by offering higher interest rates on checking and savings accounts and, until recently, certificates of deposit. Bank deposits fell by more than $200 billion to below $14.2 trillion, while money market fund balances climbed by $137 billion to a record of more than $3.5 trillion.
Debt levels for households, businesses and governments kept rising in the second quarter, though the pace of increase varied widely by sector.
Total nonfinancial debt increased at an annualized rate of 6.3% - the fastest since the first quarter of 2021 - to $71.2 trillion, with households and businesses each accounting for roughly $20 trillion and government $31.3 trillion.
The main driver of the increase was the 12.7% annualized increase in federal government debt, the largest since the record increase in the second quarter of 2020 that had fueled the first round of pandemic relief spending. The U.S. Treasury ramped up bond issuance late in the second quarter after the Biden administration and Congress struck a deal to suspend the federal debt ceiling and avoid a government default.
Business debt growth, meanwhile, moderated substantially, climbing at just a 1.9% annualized rate in the second quarter, its slowest growth since the final three months of 2020.
(Reporting by Dan BurnsEditing by Chizu Nomiyama and Frances Kerry)