WASHINGTON (AP) — Americans are climbing further out of the hole they sank into during the Great Recession.
A stock rally at the end of 2011 helped rebuild more of their lost wealth — a trend that carried into 2012. Households responded by borrowing more for the first time since the financial crisis began, even as home values fell further.
Household wealth rose 2.1 percent in the October-December quarter, the most in a year. Still, it would have to rise 13 percent more to regain its pre-recession peak.
Americans' stock portfolios rose nearly 10 percent last quarter to drive the gains. And the Standard & Poor's 500 index has risen 24 percent from early October.
Neerja Pahwa is sensing a difference.
Pahwa, a flight attendant and fragrance consultant from St. Louis, still hasn't recouped all of her investment losses suffered during the recession. But she's secure enough with her finances to eat out and stop by Starbucks more frequently. And she recently made a down payment on a retirement home in Florida.
"Things are looking brighter and sunnier," said Pahwa, 64, who hopes to retire next year if the economy keeps improving. "I don't have too much in my pocket. But I know it's coming. Things are only going to get better."
Household wealth, or net worth, is the value of assets like homes, bank accounts and stocks, minus debts like mortgages and credit cards. It bottomed out during the recession, at $49 billion in the first quarter of 2009. But it's still below its pre-recession peak of $66 trillion.
Greater net worth can boost the economy. When people feel wealthier, they spend more. That speeds up growth and businesses respond by stepping up hiring and expansion plans.
Arash Shirazi is spending again after cutting costs during the recession. He says his portfolio has "come back almost to what it was." He's even flying to Paris and thinking about growing his business.
"Things are getting better," said Shirazi, 37, who owns a music and talent agency in Washington. "I'm not going on vacations or buying new cars. But I'm definitely starting to spend a little more."
Corporations are also wealthier. They held a record $2.2 trillion in cash at the end of the year.
Still, few Americans are seeing returns on their biggest investment. Home values dropped 1.3 percent in the fourth quarter to roughly $16 trillion. They have now fallen nearly 24 percent since the recession began.
The housing market could pick up if the job market keeps strengthening. The economy has added 200,000 net jobs on average in each of the months from November through January, lowering the unemployment rate to 8.3 percent. Economists predict employers added more than 200,000 jobs last month, too. The government will release the February jobs report on Friday.
The improved economic outlook has made people more willing to borrow. Household debt increased at an annual rate of 0.25 percent, the first increase since mid-2008.
"Consumers have been more willing to use credit cards for shopping, signaling renewed confidence in their financial and job prospects," said Paul Edelstein, director of financial economics at IHS Global Insight.
That doesn't mean that Americans are starting to significantly load up their credit cards again, financial planners and economic analysts say. Credit card debt remains well below its pre-recession level, as measured by a separate report released by the Fed Monday.
A survey of economists by The Associated Press last month found that Americans will gradually save less and borrow more, reversing a shift toward frugality that followed the financial crisis and start of the Great Recession.
Roughly half of U.S. households own stocks or stock mutual funds. Stock portfolios make up about 15 percent of Americans' wealth. That's less than housing but ahead of bank deposits, according to the Fed's report.
Most stock wealth is owned by the richest Americans, who also account for a disproportionate amount of consumer spending. Eighty percent of stocks belong to the richest 10 percent of Americans. And the richest 20 percent represent about 40 percent of consumer spending.
Stocks have nearly doubled in three years. Thanks largely to that surge, about 95 percent of people with 401(k) retirement savings plans have more money in their accounts than they did at the peak of the market in October 2007, according to the Employee Benefit Research Institute in Washington.
The average 401(k) balance in accounts at Fidelity Investments, the nation's largest 401(k) administrator, rose 8 percent in the fourth quarter. And stock gains this year have likely increased those accounts even further.
But it doesn't mean that people are feeling carefree about their financial situations.
"Right now, many people are surprised their net worth is increased. And some aren't even sure it's real yet," said Tom McGuigan, a certified financial planner at Oklahoma City-based Burns Advisory Group.
The Fed's quarterly report documents wealth, debt and savings for corporations, governments and households. It covers most of the financial transactions that take place in the United States.
Carpenter reported from Chicago.