No wonder America is having trouble escaping the clutches of the subprime crisis, the GFC and recession it triggered. The trio of disasters slashed the income of ordinary Americans, making them unemployed in their millions, killed off home ownership, and ruined lives across the country.
Over 2007-10, the US economy saw the biggest slump since the Depression in the 1930s. Real gross domestic product (GDP) fell nearly 5.1% between the third quarter of 2007 and the second quarter of 2009 (the official period of recession as determined by the US National Bureau of Economic Research). Unemployment spiked from 5%. to 9.5% (the highest since the early 1980s). House prices fell 22%, according to surveys listed in the Fed report. Prices by the end of 2010 where 27.5% under the peak reached in 2006.
Recovery from the slump has been slow: real GDP did not return to pre-recession levels until the third quarter of last year. The unemployment rate continued to rise through the third quarter of 2009 and remained more than 9.4% during 2010. It is now 8.2%. House prices have continued to weaken.
The full terrible cost of the GFC and recession on the US has been shown in a study from the Federal Reserve, with the plunge in house prices and shares cutting the income of the median US household by 39% from 2007 to 2010. Overall, median household net worth slid to 1992 levels after adjusting for inflation, wiping out the gains of the late-1990s internet boom and the post-2000 housing surge.
A real case of back to the future.
Movements in housing prices and the sharemarket suggest that the situation for middle-class America hasn’t improved much since 2010. The Standard & Poor’s 500 index is only up 4.1% since the end of 2010 (at the end of March, it was up more than 10%). Housing prices have kept declining, falling 1.9% in the 12 months ended in March this year, according to the S&P/Case-Shiller composite index.
And, the income data contained in the monthly reports on jobs and personal income and spending shows wages have yet to regain their pre-2007 levels. As a result, median household incomes, adjusted for inflation, are still around 6% lower than in June 2009, when the recession ended, and 8.3% lower than in late 2007.
When you see the damage done to US household income and wealth, its easy to understand why there’s been such a huge increase in the number of people receiving food stamps: in March this year it was 46.8 million people, or 15% of the US population. From the start of 2007 to the end of 2010 (the period covered by Fed’s survey), the number of people on food stamps jumped 69%, from 26.4 million people to nearly 44.1 million people.