How much did the Great Recession set back American families? One answer, provided by the Federal Reserve last week (PDF) , is 38.8 percent. That’s how much the median net worth of American families fell from 2007 to 2010 – or in dollar terms, from $126,400 to $77,300, according to data from the Fed’s Survey of Consumer Finances. The average drop was smaller, at 14.7 percent.
Not surprisingly, the housing bust was to blame for a huge part of the overall decline in wealth. “Although declines in the values of financial assets or business were important factors for some families, the decreases in median net worth appear to have been driven most strongly by a broad collapse in house prices,” the Fed researchers note.
The Fed data makes clear that the recession undid years of financial gains. The average net worth fell back to about the level seen in 2001, while the median value put families close to where they were back in 1992, according to the report. Or as Peter Coy of Bloomberg Businessweek pointed out, they may be back at 1989 levels.
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Predictably, the data became fodder for more partisan sniping about whether or how much President Obama is to blame for the mess. Mitt Romney fired away on Fox News. Obama’s economic team responded to the report on the White House blog. But all the political finger-pointing may have obscured some larger points about just how much American families have done to rebuild. “If the recession set Americans back 20 years, economists say, the road forward is sure to be a long one,” the Washington Post’s Ylan Q. Mui wrote last week. That’s true, but it may not be quite as long as you might believe from seeing headlines blaring about a 40 percent plunge in net worth.
As Gary Thayer, the chief macro strategist for Wells Fargo Advisors, wrote in a note to clients on Friday, “it is probably more important to look at what households have done about their personal finances since then to see what the economy may do in the future.” On that front, while American families, like the private sector, aren’t exactly “doing fine,” they have recovered remarkably from the depths of the downturn, helped tremendously by a stock market that has roared back from its recession lows – and by their own efforts to fix up their personal finances (see chart below, which comes via Thayer).
Gene Sperling and Jason Furman, the director and deputy director of the president’s National Economic Council, pointed out on the White House blog that household net worth has actually increased 23 percent since Obama took office. Housing has largely stabilized, albeit at levels more in line with pre-bubble valuations than at the outrageously inflated prices so many Americans paid.
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But the stock market has done much, much better: Propelled by record corporate profits, the Dow Jones Industrial Average is up about 95 percent from its low of March 9, 2009 – and it’s about 10 percent off its all-time closing high, reached in October 2007. And while student debt is at record levels, Wells Fargo’s Thayer points out that consumer credit scores are in much better shape than they had been a few years ago. “Household finances have improved since the drop in wealth detailed in the Fed study,” Thayer writes. “Consequently, the outlook for the economy is probably not as bad as one might expect just looking at the Fed report.”
