Most Americans Missed the ‘Economic Recovery’
The Great Recession technically ended in the summer of 2009, as gross domestic product rebounded from the bottom and started to expand. However, to many Americans not looking at the textbook definition, the recession never ended. Stagnant wages, high unemployment, and rising expenses are still weighing on consumers. Making matters worse, the rebound in asset prices missed the majority of the country.
During the first two years of the “economic recovery,” the wealthiest households enjoyed the majority of the rebound. The mean net worth of households in the upper 7 percent of the wealth distribution surged 28 percent to $3,173,895 between 2009 and 2011, according to a new analysis from the Pew Research Center and Census Bureau data. In comparison, the mean net worth of households in the lower 93 percent declined by 4 percent.
The dividing line between the two sets of households is $836,033. The wide difference is contributed to by the fact that upper households are more likely to hold stocks and bonds, which have rallied a significant amount over the past several years with the help of the Federal Reserve. The less affluent households typically have the majority of their wealth concentrated in their homes.
The 8 million American households in the top 7 percent witnessed their aggregate wealth increase $5.6 trillion from 2009 through 2011. Meanwhile, the bottom 111 million households experienced a $600 billion decline in estimated aggregate net worth.
Unsurprisingly, these differences have caused an even greater shift in the share of aggregate household wealth in the country. The upper households grew their share of the wealth pie from 56 percent in 2009 to 63 percent in 2011. On average, these households held 24 times the wealth of those in the less affluent group in 2011, compared to a ratio of 18-to-1 in 2009.
Overall, the wealth of America’s households increased 14 percent to $40.2 trillion in 2011, compared to $35.2 trillion in 2009. Household wealth is the sum of all assets, such as a home, car, real property, a 401k, stocks, and other financial holdings, minus the sum of all debts, such as a mortgage, car loan, credit card debt, and student loans.
During the period of the study, the S&P 500 increased 34 percent, and continues to rise even higher. On the other hand, the S&P/Case-Schiller home price index declined by 5 percent and remains well below its glory days of the housing bubble.
The Pew study notes, “The different performance of financial asset and housing markets from 2009 to 2011 explains virtually all of the variances in the trajectories of wealth holdings among affluent and less affluent households during this period. Among households with net worth of $500,000 or more, 65 percent of their wealth comes from financial holdings, such as stocks, bonds, and 401k accounts, and 17 percent comes from their home. Among households with net worth of less than $500,000, just 33 percent of their wealth comes from financial assets and 50 percent comes from their home.”