Tue, June 12, 2012
The Federal Reserve’s latest report demonstrates quantitatively something that many already knew intuitively: American households took a serious hit in net worth and income during the Great Recession.
Every three years, the Federal Reserve conducts the Survey of Consumer Finances, a survey of 6,500 families that span a broad range of economic demographics. The Fed’s 2010 Consumer Finance survey report, released yesterday, covers the period from 2007 to 2010, which roughly coincides with the worst part of the Great Recession.
Their findings indicate not only that net worth plunged for a wide range of households, but also found that incomes took a hit: adjusted for inflation, median family income dropped by 7.7% between 2007 and 2010, with households in the South and West suffering the greatest declines. Interestingly, median incomes for retirees and other non-working families increased somewhat.
Median net worth declined from $126,400 to $77,300 – a 39% drop that brought net worth back to levels last seen in 1992. The greatest net worth declines were driven - unsurprisingly - by housing prices. Since middle-class households tend to hold a larger proportion of their net worth in their homes than the wealthy do, they suffered proportionately larger declines in net worth.
Perhaps the most positive news was the observation that household debt burdens were generally lower at the end of the period, partly due to interest rates that were at generational lows.
The report also noted that despite the breadth of the decline in income, the general pattern over the last two decades has been a widening gap between incomes at the top and bottom of the household distribution.