This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Ignore the Fed, Middle-Class Wealth Lags Since Great Recession

NEW YORK (TheStreet) -- The middle class is moving forward financially, but still can't get back to square one in the seven-plus years since the economy suffered its worst battering since the Great Depression, and analysis from the Federal Reserve saying the middle class had largely recovered from the Great Recession may have been premature.

At least, that's the view from researchers at Ohio State University.

Instead of "catching up" in key household economic areas such as home values, investment portfolios and household debt, as the Fed indicated had already occurred, the Ohio State study says Americans are still down 14% in household income since 2006, just before the economy turned south.

The OSU study also shows the middle class absorbed the "biggest hit" from the downturn.

Must Read: Legal Marijuana Industry Launches Its First Job Fair

That outlook differs substantially from the federal government's assessment of household income in current terms, which claimed household income "was the highest in nominal terms since 1945."

But the Federal Reserve didn't cover all the bases in a few critical areas, most notably in a "failure" to adjust for inflation and population growth; the inclusion of stock market accounts held by foreign investors (which should not have been included in the Fed's assessment data, the OSU report says) and it included nonprofit wealth, when only household income should have been included (again, according to OSU researchers).

That led to a more optimistic economic forecast than reality holds, says Randy Olsen, report co-author and an economics professor at the university.

"All four of these issues with the Fed report pointed in the same direction, leading toward a conclusion that was far rosier than what exists in the real world," Olsen says.

Olsen and co-author OSU economics professor Lucia Dunn relied heavily on data compiled from the Consumer Finance Monthly, OSU's own monthly telephone survey of households, which the study touts as a more accurate barometer of economic wealth than the Federal Reserve's data. (Olsen says the CFM data excludes the four economic data points listed above.)

"The CFM dataset fills in some key gaps in the history of the Great Recession and allows us to have a much clearer picture of what happened to American households during this economic downturn," Olsen adds.

The OSU date breaks down the path of U.S. economic wealth as follows:

  • The "real" net worth of U.S. households reached a high point in 2006, at $398,620.
  • In 2009, that figure had fallen to $217,687.
  • In 2012, U.S. household wealth rose to $333,859.

"Additional improvements" in 2013 further boosted household income, but still at a level 14% below those 2006 highs.

Some demographic groups, such as less wealthy Americans, have actually recovered more than the middle class, but there's a reason for that, too.

"Many may have already lost their homes and had their credit cards taken away," Olsen explains. "If they can't borrow, they can't go into debt. Some may have paid off their old car loans, which gives them a small asset."

Suffering the most were middle-class households, defined by OSU as Americans aged 35 to 54. As of 2012, this group was still 27% behind their household income highs in 2006.

"What we're seeing in these middle-aged people is very disheartening, because they are in what should be their peak earning years, when they should be accumulating assets before retirement," Olsen says. "As much as the Federal Reserve might want people to believe we have recovered from the recession, the bottom line is that we haven't."

That's a tough assessment for the middle class, which historically has carried the economy on its back.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $94.46 0.88%
FB $117.75 -0.69%
GOOG $693.15 -0.72%
TSLA $233.63 -3.40%
YHOO $35.98 -1.50%


Chart of I:DJI
DOW 17,711.39 -179.77 -1.00%
S&P 500 2,059.52 -21.91 -1.05%
NASDAQ 4,759.9470 -57.6470 -1.20%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs