Ask Liz Weston

Get smart with your money

recession

Do you feel richer yet?

By

Zemanta Related Posts ThumbnailWe’re richer than we were before the recession, according to a new report by the Federal Reserve. The net worth of U.S. households and nonprofit organizations is now a record $80.7 trillion, 14% higher than last year. The previous peak in 2007 was $76.59 trillion in today’s dollars.

If you don’t feel wealthier, though, you’re not alone. Most of the gains went to the country’s richest households, and older people saw bigger wealth increases than younger people. That doesn’t bode well for consumer spending, economists said, since younger and less wealthy households are more likely to spend their gains. An article in today’s Wall Street Journal includes this quote:

“Wealth inequality…has increased over time,” said William Emmons, an economist at the Federal Reserve Bank of St. Louis. “So, there seems to be a disconnect: There are big wealth gains, but not much follow-through on consumer spending.”

Another study by the Federal Reserve Bank of St. Louis found that the average family headed by someone under 40 has recovered only about a third of the net worth lost during the financial crisis and recession, while the average wealth of middle-aged and older families is about where it was prior to the crisis.

Why you still feel like you’re in a recession

By

Money squeezeI’ve been through several recessions now, and they all had at least one thing in common: people complained that the economists who declared an official end to the downturn were out of touch, because it didn’t feel like the recession was over.

Recoveries take a while to spread through the economy, which means people experience the expansion at different times…and some never feel it at all, because they or their geographic areas are permanently left behind.

In the case of the Great Recession, though, there are pretty good reasons why you may feel like it never ended:

  • For one thing, median household income in the U.S. in real terms (adjusted for inflation) is nearly 9% less than it was in 1999, according to the Census Bureau.
  • The unemployment rate (now 7.4%) has been declining, but is still well above 2007 rate of 4.7%.
  • The unemployment rate doesn’t capture discouraged workers (those who have given up looking for work) and those who are working less than they’d prefer. In fact, the number of full-time workers as a percentage of the population is down sharply from pre-recession levels.

I could go on, but economists who have dug into the numbers make it clear that most of the growth in recent years has accrued to those at the top. Earlier this year, the New York Times featured research by Emmanuel Saez, an economist at the University of California, Berkeley, that tracked incomes between 2009 and 2011:

“…there was a wide gap between the top 1 percent, whose earnings rose by 11.2 percent, and the other 99 percent, whose earnings declined by 0.4 percent.

Mr. Saez, a winner of the John Bates Clark Medal, an economic laurel considered second only to the Nobel, concluded that ‘the Great Recession has only depressed top income shares temporarily and will not undo any of the dramatic increase in top income shares that has taken place since the 1970s.’

The disparity between top earners and everybody else can be attributed, in part, to differences in how the two groups make their money. The wealthy have benefited from a four-year boom in the stock market, while high rates of unemployment have continued to hold down the income of wage earners.”

The takeaway here (besides the fact that it’s nice to be rich) is that it’s not just your imagination: the recovery has not spread very far into the economy.