The Recession: 10 Years Later

Posted on December 08, 2017 by Laura Lam

Recession 10 years 1In December 2007, employment peaked and started to head south – for two long years.  What followed: The loss of more than 8 million jobs, half the value of the Dow and the S&P 500, and trillions of dollars in retirement accounts and household wealth. Lives and businesses were ruined and whole neighborhoods emptied out, as banks took back homes bought on badly underwritten credit.

A decade later, the American economy has recovered in many ways. Employers have been steadily adding jobs since early 2010, the stock market is booming and home prices have reached new all-time highs.  But in other ways, Americans still carry the scars of the recession, some of which will never heal.

Jobs are back, but the workforce has shrunk

One of the most remarkable aspects of America’s rebound is the unemployment rate. It sunk to a 16-year low of 4.1% in October, with some industries reporting difficulty finding workers.  Even a more expansive measure of unemployment — which includes people who want a job but have been discouraged from looking for one and those who work part-time but want to work full-time — has matched its pre-recession low of 7.9%.  But even that isn’t the whole story. The share of Americans who are working or want to work has been falling for a couple decades, from a peak of 67.3% in 2000 to 62.5% in 2015.

In large part, that reflects how America’s workforce is getting older and retiring faster, and economists at the Federal Reserve Bank of Dallas expect the overall rate to keep falling. Still, participation rates for prime-age workers remain depressed as well, with large numbers of people sidelined by opioid addiction, low wages that make work less attractive, and the high cost of childcare that keeps women in particular at home.

Wages are rising, but wealth hasn’t recovered

Recession 10 years 3For several years during the recovery, the big problem was wages: Even as hiring picked up, paychecks remained depressed.  That started to change around 2015, as state and local minimum wage hikes kicked in and employers started raising base pay to attract and retain good workers. Now, median household income is back up to approximately where it was in 2007, at just above $59,000 a year.  In 2016, the Federal Reserve found that 70% of adults reported living comfortably or doing okay financially, up from 62% when they began asking the question in 2013.

But the recession didn’t just impact earnings — it slashed savings and investments. The median household’s net worth dropped by 40% between 2007 and 2013, according to a triennial survey by the Fed, and had only recovered slightly by 2016.  The decline in net worth has implications for retirement security, with 28% of Americans over age 18 claiming no savings whatsoever.  Still, Americans are feeling better about their prospects, according to Gallup: 54% of those who haven’t retired yet say they’ll be able to live comfortably when they do. That’s up from 38% in 2012, but still below pre-recession levels.

Home prices are rising, but fewer people are buying

A big part of the plunge in household net worth had to do with housing.  As the financial crisis deepened, the delinquency rate for single-family mortgages spiked to 11.5%, and millions of homes went into foreclosure. In three years, the total amount of equity held by homeowners was cut in half.

Now that the real estate market has recovered and mortgages have stabilized, household equity has bounced back to exceed its pre-recession high. The delinquency rate has also steadily been sinking back towards its 2005 low of 1.42%.  However, owning a home isn’t as popular as it used to be. The homeownership rate sank from 69.4% in 2004 to 63.1% in the middle of last year, and has only just started to bounce back.  The reasons behind that trend are numerous and complex: tighter credit, hefty student loan debts, skyrocketing home prices in select cities, supply shortage, etc.  One in three young people lived with their parents in 2015, up from one in four a decade earlier, the Census Bureau reported.

Source: CNN Money