In what could be viewed as another indication that things are getting better, the Federal Reserve reported today that net household worth rose 5 percent during the third quarter of 2009.

The Fed's quarterly Flow of Funds Report said that the net worth of U.S. households rose $2.7 trillion during the quarter to $53.4 trillion.  The net worth is the difference between the value of a household's assets and its liabilities.  Net worth also grew during the second quarter.

Weak household wealth has been viewed as contributing to the recession by holding down consumer spending which is the engine of the U.S. economy.  It is expected that the new figures will help boost confidence in the economy.

These figures, however, are well below the peak recorded in 2007 when household net worth was valued at $65.3 trillion.  Still, the third quarter figures were an improvement of $4.9 trillion over from the trough recorded earlier this year.

Household debt was down at a 2.5 percent annual rate from the second quarter as levels of mortgage and consumer debt fell.  This was the fifth consecutive quarter that household debt was down.

Equity in household real estate rose to 38 percent from an all-time low of 33.5 percent earlier this year.  This was due to a slight increase in real estate values and a 3.5 percent decline in mortgage debt.  As 31 percent of households that own property do not have mortgages, equity per mortgage is actually far lower than these figures would indicate.

Business debt was down 2.5 percent but the federal government's debt, not surprisingly, rose 21 percent (annualized) during the quarter, down from the 28 percent increase recorded in the second quarter.

Households are also reining in new borrowing.  Mortgage borrowing was down $370 billion in the third quarter (page 8) and consumer borrowing fell by $81.6 billion.  This is the sixth consecutive quarter mortgage borrowing has fallen and the fourth quarter of declines for consumer borrowing.