The latest report from the Federal Reserve Bank of St. Louis comes as little surprise to most. The message: Contrary to government insistence, American households have not financially recovered from the housing bubble and financial crisis. In fact, we are far from it.

The St. Louis Fed released its annual report and in it, we learned that data from the government is completely misleading. As part of its new Center for Household Financial Stability efforts, the report notes that the recovery in terms of net worth is tied to the stock market. Since most Americans don’t trade on the markets, at least directly, the numbers are skewered. As a result, despite its assurances that it focuses on the average American consumer, it falls short as well. In other words, we haven’t financially recovered from the tough economic times.

The Center for Household Financial Stability Efforts was founded with the sole purpose of track Americans’ efforts of recovering from the recession.

Clearly, the 91% recovery of wealth losses portrayed by the aggregate nominal measure paints a different picture than the 45% recovery of wealth losses indicated by the average inflation-adjusted household measure,

the report said. It goes on,

Considering the uneven recovery of wealth across households, a conclusion that the financial damage of the crisis and recession largely has been repaired is not justified,

the researchers said. The report also mentions debt levels and the significant problems many are running into when trying to rebuild their net worth. Those hardest hit by reduced income and job losses are the ones who not only have trouble borrowing, but who are struggling to even make ends meet at this point.

It’s also interesting to note that as the new Center was being defined, other parts of the Federal Reserve are also taking a second look at American households and the financial considerations. One surprising (for government officials) take (and one that surprises the average American none) shows us that we, as consumers, have a long way to go. Home prices and stock market highs mean little to the welder with a young family or the hairdresser who’s a single mom. Asking them if they’ve financially recovered is an interesting conversation. One woman we spoke to replied,

I just had to borrow fifty dollars from my dad just to cover groceries this week. I work fifty hours a week. So no. I’m not financially recovered.

To be more exact, the reality is that average household wealth is only halfway recovered. Younger, less educated, African American, Hispanic families are the ones more like to face these struggles and take the hardest hits. Referring to them as “economically vulnerable groups”, the data from them will be used to “inform policymakers, practitioners and financial institutions on ways to help families save and invest more wisely, thus contributing to households’ economic mobility and the nation’s economic growth.”

Its President and CEO James Bullard stressed how crucial it is to “learn more about the link between households’ balance sheets – their savings, assets, debt and net worth, as distinct from wages and income – and the performance of the national economy.” He wrote in the annual report,

Work is under way and the partnerships are forming with colleagues throughout the Federal Reserve System, as well as external researchers and others.


As we learn more about how microeconomic activity affects the performance of the macroeconomy, this research could have important public-policy implications, including insights for monetary policy.

With a focus on the macroeconomy, it should surprise no one that another Federal Reserve report, released just weeks ago, is significantly flawed, or at least considerably different. It doesn’t focus on the average American family. It found that Americans overall had regained 91 percent of their losses, suggesting that they have financially recovered. The real truth is that household wealth dropped $16 trillion from the third quarter of 2007 through the first quarter of 2009. By the final three months of 2012, American households as a whole had regained only $14.7 billion.

Another element found in the report is that while households have reduced their outstanding debt by about $1.3 trillion, a solid portion of that is found in consumer defaults and lender chargoffs. Again, that’s not surprising to many consumers who live it every day, but it is interesting to note that first, it goes against the other Fed report. It would seem that at least one federal agency is finally beginning to either “get it” or “own up to it”. Or does it?

There’s also new data that shows a rich new data set on individual debt that shows households work hard to pay down their debt, especially credit card debt, to keep their credit scores up. Indeed, many were able to successfully do so; yet, banks’ and their stricter lending policies have failed to allow that to play any role in their credit decisions. This, of course, doesn’t bode well for the assurances that we’ve financially recovered.

Then, there’s this statement:

Economically vulnerable families that diversify their assets beyond housing achieve greater financial stability.

Apparently, someone forgot to mention that first, many families who went through a foreclosure are paying 30 percent more in rental. The student loan debt has long since surpassed the $1 trillion mark and as mentioned, the banks are increasing their lending policies with little consideration for those lower income families that managed to keep up their payments. Things like “diversifying assets” and “achieving greater financial stability” looks great on a federal government report; however, it would appear that brief moment of actually getting it has fell to the wayside.

Indeed, the numbers are accurate, the statistics are right on the money and the good faith effort counts. There has yet to be, however, a realistic effort from the collective government on a few very important goings-on:

  • The changes in the credit reporting efforts and what it means to their buying power
  • The economy
  • The worries about the August deadline looming surrounding how much student loans are going to cost
  • Why, since everyone is so convinced economic recovery is tied to the stock market, it’s still doing so good despite not a single reason that justifies it
  • News that the IRS says the cheapest Obamacare policy will total $20,000 a year for a family of four
  • Whether or not they will be one of the two-thirds of Americans who won’t buy insurance and what that means for their taxes every year

The information contained in the report is important, but the fact that it slaps a label on it that says it’s all about the American consumer is far-fetching and frankly, misleading. Americans want to know they can access credit if they need it. They want to know that the CARD Act is going to protect them from illegal APR increases. They want to know their little ones will get the medical attention they need. They’re less interested, at this point, in how their personal wealth changes because of their ability to “financially diversify”.