‘US household wealth has still not recovered’

Washington, Feb 28: Despite last year’s optimistic report from the US Federal Reserve, the US household wealth has not still recovered from the battering it faced after 2008 recession, shows research.

The mean net worth of American households in mid-2013 was still about 14 percent below the pre-recession peak in 2006.

Middle-aged people took the biggest hit, said economists at The Ohio State University.

The recession and the recovery, however, did not affect all US households the same way.

Results showed that less wealthy people and younger people lost more during the recession in percentage terms, but also recovered more since then.

In a report last June, the Federal Reserve said that net worth of Americans – which includes the value of homes, stocks and other assets minus debts – had essentially recovered since the recession of 2007 to 2009.

“The Fed’s analysis included four data issues that gave a significant boost to its optimistic reading of the economy,” said Randy Olsen, co-author of the study and a professor of economics at Ohio State.

The data, however, didn’t adjust for inflation or population growth, and included accounts held by foreigners living outside of the US, and included wealth held by nonprofits and not just households.

“All four of these issues with the Fed report pointed in the same direction, leading toward a conclusion that was far rosier than what exists in the real world,” Olsen added.

Olsen and colleague Lucia Dunn, also a professor of economics at Ohio State, used data from the Consumer Finance Monthly (CFM), a monthly telephone survey of US households conducted by Ohio State’s Center for Human Resource Research.

“The CFM dataset fills in some key gaps in the history of the Great Recession and allows us to have a much clearer picture of what happened to American households during this economic downturn,” explained Dunn.

“What we’re seeing in middle-aged people is very disheartening because they are in what should be their peak earning years, when they should be accumulating assets before retirement,” said a concerned Olsen.

Many may have already lost their homes and had their credit cards taken away. If they can’t borrow, they can’t go into debt. Some may have paid off their old car loans, which gives them a small asset, noted the study.

As far as age groups go, it was the young who have recovered best from the recession.

Those under 35 were 4 percent below their 2006 net worth by 2012. Those over 55 were 13 percent below.

Those who suffered the most were people aged 35 to 54, concluded the study that appeared in the journal Economics Letters.

IANS