Wealth Recovery Still Not Complete, Remains Uneven Across Families and Locations

ST. LOUIS —The Center for Household Financial Stability at the Federal Reserve Bank of St. Louis reports that the average U.S. household had recovered only 87 percent of the wealth it lost during the recession by the end of the third quarter of 2013. That is up from 79 percent at the end of the second quarter.

The Federal Reserve Board on Dec. 9, 2013 reported that household wealth had grown to an all-time high of $77.3 trillion by the end of the third quarter. William Emmons, senior economic adviser for the Center, and Bryan Noeth, policy analyst for the Center, adjusted the Board data for inflation and household growth to show that the recovery reality is not as bright in terms of purchasing power for the average family.

Emmons and Noeth explore the data in detail in the latest issue of In the Balance, the Center’s quarterly research brief. To read the article, go to www.stlouisfed.org/publications/itb.

They note that the recovery is proceeding at an uneven pace. Beside the widely reported fact that wealth increases have mostly come in the form of stocks and other financial assets that benefit mostly the wealthiest 10 percent of Americans, the recovery in housing–where most households have their wealth–also is uneven. This is because both the average value of a house and the rate of house-price appreciation have varied greatly across locations.

For example, from their low points at the end of the third quarter of 2011, the average house price in California appreciated about 32 percent through the end of the third quarter of 2013 versus about 11 percent in Missouri. In current-dollar terms, this translates into an average increase of more than $133,000 for a California homeowner versus about $18,000 for a Missouri homeowner. The potential boost to household spending therefore is much greater in some parts of the country than others.

While they are a positive indicator of economic stability for many families, asset-value increases can’t by themselves speed up growth; borrowing also needs to be part of the equation. Since the early 1950s, when our data begin, households’ average inflation-adjusted assets and liabilities have gone in the same direction at similar rates. Since early 2009, however, asset values generally have moved up while debt has decreased. Household deleveraging–a major factor in slowing the nation’s economic recovery–appears to be mostly complete, but families haven’t resumed borrowing to continue to build assets, and that’ll be necessary for meaningful economic growth.

”When we look at the household balance sheets of American families, the implication of these trends remains clear,” Emmons said. “Families with large asset holdings relative to their liabilities continue to prosper, while families with few or no assets relative to their liabilities continue to struggle. Until the deleveraging process is complete and widespread gains in employment and income resume so people can once again feel comfortable borrowing and spending, we will continue to see an uneven recovery of household balance sheets and the economy.”