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U.S. household wealth fell by a record $5.1 trillion from October to December, almost twice the decrease in the previous quarter, as home values and stock prices plunged, Federal Reserve figures showed.

Net worth for households and non-profit groups decreased to $51.5 trillion, the lowest level in four years, from $56.6 trillion in the third quarter, according to the Fed’s quarterly Flow of Funds report today. The government began keeping quarterly records in 1952.

The erosion of Americans’ wealth is one reason that analysts project households will save more in coming months, restraining spending and economic growth. President Barack Obama’s administration aims to revive an economy in its second year of recession through the $787 billion stimulus package signed into law last month.

“I don’t think it’s any surprise that wealth has declined so much given the bad news out of markets and house prices,” said Jonathan Basile, an economist at Credit Suisse Holdings USA Inc. in New York. “This decline in wealth is a headwind for spending and it’s a big reason to be cautious and to save.”

Household net worth has fallen in five consecutive quarters for a loss of $12.8 trillion during that period. The decline almost matches the total size of the U.S. economy, which was $14.2 trillion in the last three months of 2008.

Consumer Spending

The report underscores economists’ judgments that consumer spending isn’t in a sustained recovery after better-than- projected results in the first two months of the year.

A Commerce Department report today showed sales at U.S. retailers in February fell 0.1 percent, less than the 0.5 percent decline anticipated by economists. The number of Americans receiving jobless benefits rose to a record 5.317 million in the week ended Feb. 28, according to data from the Labor Department payday loans with no fax.

Real-estate-related household assets declined by $937.1 billion, following a $681.2 billion third-quarter decrease. Net worth related to corporate equities dropped by $1.68 trillion.

Owners’ equity as a share of their total real-estate holdings dropped to 43 percent last quarter, from 44.8 percent in the third quarter, today’s Fed report showed.

Households borrowed less as wealth evaporated. Debt dropped at a 2 percent annual pace, the first decrease on record. Mortgage borrowing fell at a 1.6 percent annual pace, after decreasing at a 2.3 percent rate in the prior quarter, the Fed said.

‘Forced Savings’

“Households are continuing to pay down debt,” Sal Guatieri, a senior economist at BMO Capital Markets in Toronto, said before the report. “Evaporating wealth and forced savings, coupled with rampant job losses, suggest consumers will continue to hibernate.”

Total borrowing by consumers, businesses and government agencies increased at an annual rate of 6.3 percent last quarter compared with an 8.1 percent rise the prior quarter. The gain was led by a 37 percent jump in borrowing by the federal government.

Business borrowing climbed at an annual pace of 1.7 percent after rising 4.1 percent the prior quarter, the Fed said.

Borrowing by state and local governments rose at a 1.2 percent rate.

The U.S. economy shrank at a 6.2 percent annual pace in the last quarter of 2008, led by the fastest decline in consumer spending in almost three decades. Purchases dropped at a 4.3 percent annual rate October to December after falling 3.8 percent the previous three months, according to Commerce figures.

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