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Average American family income declines
(AP)
Updated: 2006-02-24 15:17
After the booming 1990s when incomes and stock prices were soaring, this
decade has been less of a thrill ride for most American families.
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 with 2001.
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 accounting scandals.
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
period.
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 2004.
"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 (news, bio, voting record), 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 market.
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 rates.
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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