U.S. households' net worth rose $2.7 trillion to $53.4 trillion in the third quarter, notching its second straight quarterly advance, Federal Reserve data showed on Thursday.
In its quarterly Flow of Funds report, the U.S. central bank said household net worth -- the difference between the value of assets and liabilities -- rose 5 percent from the second quarter.
The increase in wealth comes as the economy is steadily recovering from the worst recession in 70 years. Weak household balance sheets have weighed on consumer spending, normally the engine of the U.S. economy. The improvement in net worth could be a confidence booster.
In the third quarter, household debt contracted at a 2-1/2 percent annual rate from the prior three months, the largest decrease on record, the Fed said. It was the fifth consecutive quarterly decline, reflecting steep falls in mortgage debt and consumer credit, such as credit cards.
Business debt excluding financial institutions also fell at a 2-1/2 percent annual rate and the decline was widespread across credit market instruments, according to the Fed report.
The federal government's debt increased at a 21 percent annual rate in the third quarter, slowing from the previous three months, but still the fifth consecutive quarter of growth exceeding 20 percent.
(Reporting by Lucia Mutikani; Editing by Neil Stemplemanx)