The U.S. Recession Continues with a Vengeance

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Month after month, Gallup polls about how Americans view the economy have shown that many people believe the United States is still in a recession. A few have described the economy as in a depression. It is no small wonder. Based on the just-released Federal Reserve Board’s Survey of Consumer Finances, the results of which made the headlines of most news websites, Americans have reason to believe there has been no economic recovery at all. The recession never ended for them.

As the media examined the numbers, their main observation was that median family net worth fell 38.8% to $77,300 in 2010 from $126,400 in 2007. Most of the drop was due to the falling value of homes. The number is terrible, but that is not the worst of it. Families headed by people ages 35 to 44 had a net worth decline of 54% to $42,000. Many of these people hope to retire in the next two or three decades. The Fed data indicates how hard that will be. Some Americans who want to retire at the traditional age of 65 will find they must work for years beyond that.

The falloff was just as bad for Americans who might retire in the next decade. Median net worth among those ages 55 to 64 dropped from $266,200 in 2007 to $179,400 in 2010. It is nonsense to believe that most of these people can live another 20 or 30 years on nest eggs of that size, even with Social Security payments. And with millions of Americans living until 80 or older, the situation is more troubling.

Much was made about how the numbers analyzed in the Fed document have improved since 2010. That can hardly be true. Home prices have dropped in most areas since then. Home sales have not picked up. If anything, more homes are underwater. The American house, once a major source of retirement funds, is no longer a financial aid for many people. Additionally, one of the conclusions in the Fed’s analysis is that home ownership continued to decline from 2007 to 2010. Any sane American looking at the real estate market would have stayed away from buying a house in that period. That means that, if and when the market recovers, a number people will not realize any benefit because they have shied away from home ownership. So, for those who plan to retire in 10 or 20 years, any increase in home values over the next decade that might reverse the price trend of the past six years will not accrue to them.

The Fed data shows that the recession has not ended. For many Americans it will not end for a decade or longer.

Douglas A. McIntyre

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