The “Recovery” Has Been Shallow; Economic Recession Still a Reality for Most
When most people think “recovery,” thoughts of rising living standards and bigger abodes spring to mind. After all, business cycle recoveries are supposed to lift all boats, right? Wrong. At least this time around, according to the Federal Reserve. That’s left the majority of Americans mired in continuous economic recession, unable to break free.
Lest you believe that my statement above is hyperbolic, the data is pretty clear. Unless you’re in the top 10th percentile of economic earners, chances are you’re making less money than you did in 2007.
For example, the data shows that people in the 60th percentile (median wage) now earn 2.8% less, from $71,500/year in 2007 to $69,500/year in 2016. The only group earning more is, you guessed it, the top 10th percentile. They earn, on average, 10.1% more than they did a decade ago.
| Percentile of usual income | 2007 | 2016 | % Change | $ Change |
| 30 | $26,000 | $25,300 | -2.70% | -$700 |
| 40 | $44,700 | $43,500 | -2.70% | -$1,200 |
| 60 | $71,500 | $69,500 | -2.80% | -$2,000 |
| 80 | $113,700 | $111,400 | -2.00% | -$2,300 |
| 90 | $160,800 | $177,100 | 10.10% | $16,30 |
(Source: “Most Americans Still Worse Off Than Before Recession, Fed Finds,” Bloomberg Markets, September 27, 2017.)
While declining wage gains are troubling enough (10 years is a long time), it’s compounded by the fact that inflation and living expenses don’t take a holiday.
Although predominantly tame, inflation has averaged around two percent since 2010. Taxes are also on the rise. If you live in a state with big state pension shortfalls like Illinois or Connecticut, your taxes are skyrocketing. The Affordable Care Act (ACA) has also been legislated into law during this period, forcing consumers to pay big premiums or face penalties.
All told, while middle-class incomes have decreased by around two percent since 2007, living costs, along with inflation, have easily increased 20%–30%, conservatively speaking. It’s why more people are falling behind, belying the fallacy of “the recovery” constantly evoked in the media.
Worse Off Not Just in Income, But in Wealth Too
If the income statistics weren’t bad enough, average Americans are also falling behind in the wealth race.
In 2007, the median net worth of American families was around $139,700. By 2016, the median dropped to $97,300—a decline of 30.35%! Families situated in the top 10th percentile, however, have enjoyed a substantial gain since 2007. Their wealth increased from $1,054,200 to $1,186,300, a percentage gain of 12.53%. (Source: Ibid.)
This has effectively pushed income disparity to record levels, even beyond the 1929 stock market peak. Historically, extreme levels of income disparity have also been a precursor to economic recession. It’s almost as if the forces of nature (i.e. stock market) wash away the excesses to get everything back to equilibrium.
Will that happen this time around? In my opinion, absolutely. We all know about the excess valuation prevalent in the markets. But a hollowing-out of tens of millions of middle-class jobs should keep eroding people’s ability to invest in the stock market. Not just individual investment, but automatic investments and 401ks.
The more that people get squeezed, the more they trim back purchases that don’t help them in the now. Margin debt and central bank intervention is holding everything together currently, but lackluster participation by Joe Public will catch up to markets…eventually.
Until then, the economic recession continues to grind on for the average American.