Who’s still smarting from the financial crisis?

According to the Federal Reserve Bank of St. Louis’ 2012 Annual Report

In nominal terms (i.e. ignoring inflation) aggregate household net worth at the end of 2012 was $66.1 trillion, nearly back to its precrisis peak of $67.4 trillion, reached at the end of the third quarter of 2007.

After falling to $51.4 trillion at the end of the first quarter of 2009, the subsequent increase of $14.7 trillion through the end of last year.

In other words – nominal aggregate household net worth (the blue line) is almost back to where it was before the financial crisis … call it down 3% from the peak.


But … there’s way more to the story.

First, nominal measures ignore the effect of inflation.

Now, you may be saying: “So what, the Feds keep telling us that inflation in negligible”.

Not so fast.

In fact, consumer prices increased about 2% per year in the 5-1/4 years since the third quarter of 2007, reducing the purchasing power of a dollar by a total of about 10 %.

Adjusting for inflation, aggregate “real” household net worth (the red line) is still down about 13% from the peak.

And, the Fed points out that population has grown and the number of households has increased.

The number of households increased by about 3.8 million between the third quarter of 2007 and the end of 2012, or about 3.4 percent.

That means that aggregate real net worth per household (the green line) is still down down 15% to 20% from the peak.

That’s awful, but not exactly catastrophic,

And, the story gets worse with a drill down …

The Fed says that of the total recovery of $14.7 trillion between the first quarter of 2009 and the fourth quarter of 2012, $9.1 trillion, or 62 percent, of the gain was due to higher stock-market wealth.

It’s no secret that stock wealth is unevenly held, with the vast majority of stocks owned by a relatively small number of wealthy families.

Thus, most families have recovered much less than the average amount.

A demographic “de-averaging” is somewhere between revealing … and startling.

Although many subgroups experienced large declines, the Fed’s survey suggests that “families that were younger, that had less than a college education and/or were  members of a historically disadvantaged minority group (African-Americans or Hispanics of any race) suffered particularly large wealth losses


Because disproportionately more of any net worth that they had was in their  house … and housing hasn’t roared back like the Fed-induced stock market recovery.


Bottom line: old, white, college graduates are at least back on track … maybe ahead of the game … all others are, on average, still smarting.

Ironic twist:  In the most recent NBC/WSJ Survey, 46% approve of the job that President Obama is doing on the economy; 49% disapprove … and, it appears, the vast majority of the disapprovers are in the demographic groups that have bounced back … the approvers are in the groups that got hit worse and recovered less … go figure.

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One Response to “Who’s still smarting from the financial crisis?”

  1. John Carpenter Says:

    This is fascinating but I have a question. If family wealth is tied up in real estate, and they do not have to sell, where is the loss?

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