American households lost $1.33 trillion of their wealth in the first three months of the year as the recession took a bite out of stock portfolios and dragged down home prices.
The Federal Reserve reported Thursday that household net worth fell to $50.38 trillion in the January-March quarter, the lowest level since the third quarter of 2004. The first-quarter figure marked a decline of 2.6 percent, or $1.33 trillion, from the final quarter of 2008.
Net worth represents total assets such as homes and checking accounts, minus liabilities like mortgages and credit card debt.
The damage to wealth in the first quarter came from the sinking stock market. The value of Americans' stock holdings dropped 5.8 percent from the final quarter of last year. The slide on Wall Street that began in late 2007 and gained speed last fall erased more than half the value of the U.S. stock market.
The value of stocks in the Dow Jones U.S. Total Stock Market Index, which measures nearly all U.S.-based companies, tumbled to $8 trillion when stocks hit a 12-year low on March 9. That was down from $19.2 trillion in October 2007.
The central bank's numbers don't reflect all the gains since stocks began rallying. On paper, the market is up $3.1 trillion from early March, though still down $8.1 trillion from the peak.
Another hit to household net worth came from falling house prices. The value of real-estate holdings fell 2.4 percent, according to the Fed report.
Collectively, homeowners had only 41.4 percent equity in their homes in the first quarter. That was down from 42.9 percent in the fourth quarter and was the lowest on records dating to 1945.
The Case-Shiller national home price index, a closely watched barometer, last month estimated that house prices dropped 7.5 percent during the first quarter. Prices have fallen 32.2 percent since peaking in the second quarter of 2006.
The latest snapshot of Americans' balance sheets was contained in the Fed's quarterly report called the flow of funds.
Despite the drop, the speed at which net worth shrunk slowed at the start of the year. During the recession's deepest point in the October-December period, Americans' net worth fell a record 8.6 percent, according to revised figures. That was the largest drop on records dating to 1951.
With wealth declining and unemployment rising, there are questions about how consumers -- the lifeblood of the economy -- will behave in the coming months.
If they continue to spend, even at a subdued pace, the recession likely will end this year as predicted by Fed Chairman Ben Bernanke and other economists. However, if consumers hunker down and cut spending again, that could delay any recovery. In the final quarter of last year, Americans slashed spending at an annualized rate of 4.3 percent, the most in 28 years.
Still, there was some encouraging news on consumer spending Thursday.
Retail sales rose 0.5 percent in May, following two straight monthly declines, the Commerce Department reported. Meanwhile, the number of newly laid-off workers filing for unemployment benefits fell last week by 24,000 to 601,000, the lowest level since late January.