average family income declines
- From: "Vito Corleone" <bernardsongco@xxxxxxxxx>
- Date: 25 Apr 2006 06:32:56 -0700
WASHINGTON - After the booming 1990s when incomes and stock prices were
soaring, this decade has been less of a thrill ride for most American
Average incomes after adjusting for inflation actually fell from 2001
to 2004, and the growth in net worth was the weakest in a decade, the
Federal Reserve reported Thursday.
Many families were struggling in the aftermath of the 2001 recession
and the bursting of the stock market bubble in 2000, the Fed's latest
"Survey of Consumer Finances" showed. The comprehensive look at
household balance sheets comes every three years.
Average family incomes, after adjusting for inflation, fell to $70,700
in 2004, a drop of 2.3 percent when compared with 2001. That was the
weakest showing since a decline of 11.3 percent from 1989 to 1992, a
period that also covered a recession.
The average incomes had soared by 17.3 percent in the 1998-2001 period
and 12.3 percent from 1995 to 1998 as the country enjoyed the longest
economic expansion in history.
The median family income, the point where half the families made more
and half made less, rose a tiny 1.6 percent to $43,200 in 2004 compared
Economists said the weakness in the most recent period was
understandable given the loss of 2.7 million jobs from early 2001
through August of 2003, when the country was struggling with sizable
layoffs caused by the recession, the terrorist attacks and corporate
The weak income and the stock market decline in the early part of the
decade, which wiped out $7 trillion of paper wealth, had an adverse
impact on family balance sheets.
Net worth, the difference between assets and liabilities such as loans,
rose by 6.3 percent in the 2001-2004 period to an average of $448,200,
after adjusting for inflation. That gain was far below the huge
increases of 25.6 percent from 1995 to 1998 and 28.7 percent from 1998
to 2001, increases that were fueled by soaring stock prices.
The 2001-2004 performance was the worst since net worth actually
declined by 9.9 percent in the 1989-1992 period.
The median family net worth, the point where half the families owned
more and half owned less, stood at $93,100 in 2004, a rise of 1.5
percent after adjusting for inflation from 2001.
The report showed that the slowdown in the accumulation of net worth
would have been even more sizable except for the fact that homeowners
have enjoyed big gains in the value of their homes in recent years.
The gap between the very wealthy and other income groups widened during
The top 10 percent of households saw their net worth rise by 6.1
percent to an average of $3.11 million while the bottom 25 percent
suffered a decline from a net worth in which their assets equaled their
liabilities in 2001 to owing $1,400 more than their total assets in
"This is the continuing story of the rich getting richer," said David
Wyss, chief economist at Standard & Poor's in New York. "Clearly, the
gains in wealth are going to the top end."
Democrats used the new report to blast President Bush's economic
policies, contending it would be wrong to make permanent his tax cuts
which primarily benefited the wealthy.
"These statistics show why, even though GDP is rising, most people do
not feel better off," said Sen. Charles Schumer, D-N.Y.
The Fed survey found that the percentage of Americans who owned stocks,
either directly or through a mutual fund, fell by 3.3 percentage points
to 48.6 percent in 2004, down from 51.9 percent in 2001. Analysts said
this was an indication that investors burned by plunging stock prices
in the decade's early years have been leery about getting back into the
The share of Americans' financial assets invested in stocks dipped to
17.6 percent in 2004, down from 21.7 percent in 2001. But reflecting
the housing boom, the share of assets made up by home ownership rose to
50.3 percent in 2004, compared with 46.9 percent in 2001.
The Fed survey found that debts as a percent of total assets rose to 15
percent in 2004, up from 12.1 percent in 2001. Mortgages to finance
home purchases were by far the biggest share of total debt at 75.2
percent in 2004, unchanged from the 2001 level.
There was concern that families may start to feel even more squeezed as
the cost of financing their debts increases along with rising interest
While surging home values have supported consumer spending in recent
years, analysts worry about the economic impact if, as expected, the
home price surge begins to slow this year.
"This report shows a race between factors boosting net worth such as
home ownership and factors pushing the other way such as weak wage
growth," said Jared Bernstein, senior economist at the liberal Economic
Policy Institute, a Washington think tank. "Unless we start to see
better income growth from jobs and wages, it is hard to see major gains
in net worth for the typical family."
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