If you have worked hard enough and been lucky enough to have household wealth, you know the pain created by the Great Recession of 2008-2009. We have all seen losses in real estate values (hope you have not had to sell a house) and our retirement accounts. Recent research ('Turning a Corner?', New York Times, Economix blog, posted on July 6, 2009,
click here to read the article) by economists in Europe clearly shows that this recession will be the deepest and longest since the Great Depression.
Ahmet Binerer, Research Associate with the Center, has been working with recent data from the Federal Reserve that you might find interesting. The first graph shows changes in household current net worth for the U.S. indexed to 2007 values. A number of things stand out from this illustration. First, household current net worth peaked in 2006, not 2007. The debt bubble began to burst a full year before indicators of recession surfaced late in 2007! Second, it is clear that the 9/11 recession was a quick "V" recession and recovery. Finally, there is growing evidence that we are experiencing a deep "U" recession and recovery this time. We are waiting for the latest Federal Reserve current net worth estimates for 2009 when we will begin to see if wealth formation has bottomed out and is beginning to recover. Stay tuned.
Source: Board of Governors of the Federal Reserve System, Flow of Funds -Z.1.
The second graph displays total household current net worth in real dollars from 1955 through the most recent quarter in 2009. The data is from the Federal Reserve. Note the 9/11 "V" recession and recovery, followed by the rapid wealth formation during the early part of this decade. It is now clear that most of this decade's wealth formation will be wiped away by the 2008-2009 Recession. The question that remains is how aggressive wealth formation will be during the recovery period projected to begin in the back half of 2009. Recent stock market gains suggest there could be substantial wealth gain from this source.
Source: Board of Governors of the Federal Reserve System, Flow of Funds -Z.1,
not seasonally adjusted, in 2005 real dollars.Our final graph displays household net worth including trend lines for gross assets, liabilities and net assets. The patterns tell a lot about wealth formation at the national level both historically and in recent times.
Source: Board of Governors of the Federal Reserve System, Flow of Funds -Z.1,
not seasonally adjusted, in 2005 real dollars.
We are exploring the production of a chart book focused on the most recent Federal Reserve data and recent information from the 2007 Survey of Consumer Finance, with explanations similar to what we have provided in this newsletter. If you are interested in obtaining a copy of this chart book and participating in a related Webinar, let us know. Once we have enough interest, we will begin scheduling webinars. The chart books will be available at discounted price to prior and current TOW clients.
Don Macke & the TOW Team
