Study Shows Wealth Gap Increased, Recovery Picking Up

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A recent Pew Research Center study showed that during the economic recovery, the top 7 percent of Americans saw their net worth increase 28 percent while the other 93 percent saw their net worth decrease by 4 percent, an indication that the economic recovery is not as robust as many had hoped. The other pertinent point from the study was the distinction between the stock market and the housing market.

There are multiple signs to look for when searching for an economic recovery. The stock, bonds, and real estate markets, coupled with the unemployment rate are excellent ways to measure a recovery. These markets and unemployment are improving, showing a better recovery in 2013.

According to Ameriprise Financial economist Russell Price, these figures show promising signs of improvement, but the recovery is not complete yet:

“The economy has stabilized and probably even better, it is growing a little bit although certainly less than what we would all like to see–we’re getting employment growth, we’re seeing recovery in home prices and in the stock markets, so we’re getting positive net wealth benefit.”

Between 2009 and 2011, the stock market rebounded from its lowest point in the past decade on March 9, 2009, when the Dow Jones closed at 6547.05. In 2011, it nearly doubled, peaking at 12810.54. The real estate equivalent to the stock market, the Case-Shiller Home Price Index, showed home prices fell 5 percent during that same period.

According to the Case-Shiller Index, the housing market is on a rebound. In January, the top twenty markets saw an 8.1 percent gain in value compared to the start of the previous year. These were the best statistics since before the recession began. A reason for this could be the decreasing unemployment rate.

Where the rich rely on maintaining and increasing their wealth from stocks and bonds, the middle class relies on the equity in their homes. When those two markets fail to move in tandem, the wealth gap increases.

Anybody could invest their money in stocks or bonds, but the top 7 percent are 13 times more likely to own bonds and 4 times more likely to own stocks. When taking defined contribution plans into account, 39 percent of those who earn less than $500,000 invest in a 401(k) or the like. Two-thirds of individuals who earn over half of a million dollars opt for that investment option.

Whereas March 2009 saw the lowest point in the Dow during the recession, the unemployment rate was at 8.7%. It peaked at 10% seven months later in October 2009. Since that point, it has slowly gotten better and is now at 7.6%, the lowest it has been since the end of 2006.

Although the labor market has improved, there are signs that it is still sluggish. While layoffs are down and the number of people applying for unemployment benefits is at one of its lowest points in five years, hiring has slowed to 88,000 a month from an average of 220,000 over the past four.

The Pew Research Center relied on data from the Census Bureau, which last recorded wealth statistics in 2011. This comprehensive study has been well cited and will continue as more data becomes available.

Even though the Great Recession ended in 2009, it is not a complete turnaround until the majority of Americans feel that way. When only 7%, or over 8 million people, see their net worth increase as a result of a surging stock market that not everyone invests in, that is a problem. Hiring numbers are improving along with the real estate market so 2013 may be the best year yet in the recovery.