In another sign of the negative effects of the 2008 economic crisis, the Federal Reserve released a report Monday showing a sharp drop in Americans' wealth during the resulting recession.
The report, titled "Changes in U.S. Family Finances from 2007 to 2010: Evidence from the Survey of Consumer Finances," shows that median wealth fell nearly 40 percent during that time period. Evidence from the report suggested that income losses were larger for families in the wealthier end of the spectrum
The Fed added, "Overall, both median and mean net worth also fell dramatically over this period - 38.8 percent and 14.7 percent, respectively. Changes in housing wealth and business equity were key drivers in those wealth changes."
The report was a bleak reminder of how much Americans lost after the 2008 economic crisis plunged the United States into its worst recession since the Great Depression.
The drop in income levels was mostly due to a change in income composition for American families - realized capital gains and income from businesses and self-employment dropped from 6.7 to 0.9 and from 13.6 to 12.2 percent, respectively between 2007 and 2010. Meanwhile, the share of income from salaries, Social Security and pensions and transfers all rose.
Perhaps surprisingly, the lowest quintile of earners did not experience a reduction in median and mean income - in fact, their median income rose $500 between 2007 and 2010. Mean income remained unchanged for this group.
However, there was a median and mean decline for all other income groups. Demographically, couples fared better than individuals and whites better than all other racial groups.
Additionally, the Fed said, "The decline in median income was most pronounced among more highly educated families, families headed by persons aged less than 55, and families living in the South and West regions."
But net worth saw an even sharper decrease between 2007 and 2010. This number, defined as the difference between families' gross assets and their liabilities, fell dramatically. Mean wealth fell 14.7 percent in the three years, while median wealth fell an astonishing 38.8 percent.
"Over the recent three-year period, median net worth decreased for all income groups except the top decile, for which it was basically unchanged; mean net worth fell substantially for all of the groups except the lowest quintile, for which mean wealth rose 5.9 percent," the Fed report stated.
"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 report added.
Debt was also affected. Although credit card use dropped, more Americans took out educational loans in this period. As a result, "overall indebtedness as a share of assets rose markedly" during this period.
The findings of this report come a little over a week after the Labor Department released a job report showing substantially fewer jobs were added in the month of May than experts expected - 69,000 added compared to 150,000 expected. March and April's numbers were also revised down.
The Obama administration has proposed a number of policies aimed at raising employment rates across the board, including increasing infrastructure and education jobs, helping to ensure people capable of paying their mortgage are doing so and creating a Veterans Jobs Corps.
The administration is also working closely with European leaders on how to best combat the eurozone debt crisis, which administration representatives have repeatedly stated remains a key factor slowing the American recovery.
However, the unforeseen low numbers released for last month are adding difficulty to economists' tasks of predicting where the economy will go in the near future.
"There's some mixed data coming in so it's hard to give you a really sharp forecast," Assistant Secretary for Economic Policy Jan Eberly told reporters on June 1. "But that's always the case. There's always volatility around these numbers."
by RTT Staff Writer
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