WASHINGTON — A new survey of U.S. family finances released by the Federal Reserve on Monday documents in painful detail just how deeply the Great Recession and its aftermath has been felt in family budgets across America.
The Survey of Consumer Finances, conducted every three years and covering a span from 2007 to 2010, documents steep declines in family income that correspond to what many Americans already know about their own declining net worth.
It also shows how the U.S. South and West have felt more pain than the rest of the country because of the severity of the housing sector’s downturn there, and provides evidence that the self-employed and business owners have taken it on the chin in recent years.
The survey findings provide fodder for both the re-election efforts of President Obama and the campaign of presumptive GOP presidential nominee Mitt Romney. Obama can use the data to show what a terrible economy he inherited, while Romney can use the data to show how bad things remain.
The Fed survey found that the median value of family income, when adjusted for inflation and before taxes, fell by 7.7 percent – from $49,600 in 2007 to $45,800 in 2010. The median is the midpoint of all family income, and while it fell in all four corners, it fell most in the South and West.
“The decline in median income was widespread across demographic groups, with only a few groups experiencing stable or rising incomes,” the Fed survey said. “Most noticeably, median incomes moved higher for retirees and other non-working families. The decline in median income was most pronounced among more highly educated families … and families living in the South and West regions.”
The Fed found that median net worth fell 38.9 percent – from $126,400 in 2007 to $77,300 in 2010. That essentially took net worth back to levels recorded in 1992, and reflects the steep erosion of housing wealth. Middle-class Americans have a greater proportion of net worth tied up in their home than do the rich.
The decline of incomes follows a period from 2000 to 2007 where incomes stayed flat from the end of the dot-com recession throughout recovery and until the December 2007 start of the Great Recession. It marked the first time since the end of World War II that workers made almost no progress on wages throughout an entire business cycle, said Larry Mishel, president of the liberal think tank Economic Policy Institute.
“It’s why I think about it as a lost decade for families,” he said.
The average income, or mean income, for U.S. families fell even more dramatically, by 11.1 percent in the latest Fed survey period.
“The decline in mean income was even more widespread … with virtually all demographic groups experiencing a decline between 2007 and 2010; the decline was most pronounced in the top 10 percent of the income distribution and for higher education and wealth groups,” the Fed’s survey said.
People at the top of the income ladder derive more income from stocks, which explains the drop in average income since the very wealthy account for a big chunk of all income and sinking stock prices brought down the national average income.
Falling incomes also help explain why consumer confidence remains shaky, three years after the recession ended in June 2009.
“Even before the Great Recession, we were watching consumer income for most families either grow ever more slowly or outright decline,” said Ken Goldstein, an economist with the New York-based Conference Board, which publishes a closely followed survey of consumer confidence. “Here we are in 2012, not only are we not closing that income gap if you like … we’re probably a good two or three years from beginning to close that gap.”
For the past quarter century, there’s been a widening gap between the richest Americans and everyone else. The Fed noted this income disparity and said that the decline in average income of the richest 10 percent between 2007 and 2010 “stands in stark contrast to the generally steady pattern of rising mean incomes at the top of the income distribution over the past two decades.”
There were only two other times since the Fed began doing the survey in the late 1980s that income at the top declined – the survey covering 1989 to 1992, which corresponded with a recession – and the survey from 2001 to 2004, coming out of the bursting of the bubble in tech stocks and brief recession.
In a bit of good news, the Fed survey found that the debt burden on families eased somewhat from 2007 to 2010, aided by uncommonly low lending rates. The number of families with debt exceeding 40 percent of their income also fell slightly, although the number of families 60 days late on loans ticked up from 7.1 percent in 2007 to 10.8 percent in 2010.
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