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The impact of recessions on net worth

Uneven experiences by wealth quantile

Posted on August 13, 2020

Recessions take their toll in many ways, including on households’ net worth, a stock variable that measures the difference between the value of the assets and the value of the liabilities, or obligations, a person has accumulated over a lifetime. And, as you might expect, FRED has data on this topic.

We made some adjustments to the FRED graph shown here that could use a little explanation: We started with a graph of households separated into four different classes according to wealth. We changed the units of the asset data from millions of dollars to an index and then set the base period at the beginning of the Great Recession of 2007-2009.

Now we can compare how these four different classes of households (top 1% in wealth, next 9%, next 40%, and bottom 50%) fared after the largest and most protracted contraction in economic activity since 1981. (Not for nothing is that economic downturn called the Great Recession.) In the graph, the zero date represents the fourth quarter of 2007, when the Great Recession started. The dates numbered 1 to 40 represent the number of quarters after that initial date.

This downturn itself lasted six quarters, or two and a half years, from December 2007 to June 2009. And its impact on nominal household net worth was most marked for the bottom 50% wealth quantile: At the trough of the recession, the net worth of the lower half of households decreased anywhere from 23% up to 40%. Because the least wealthy mostly hold assets in the form of housing and consumer durables, the real estate market collapse associated with the Great Recession affected this group of households the most. Moreover, it took twice as long than for any other household group for their net worth to grow back to pre-recession levels.

Further Reading

  • For more on this topic, read the Economic Synopses essays from William Gavin and Diego Mendez-Carbajo.
  • For more on how the starts and ends of recessions are dated, check this FRED Blog post.
  • Previous FRED Blog posts have also examined how U.S. GDP has recovered after five recessions (1937, 1981, 1990, 2001, and 2007). By the way, GDP is a flow variable (compared with a stock variable such as household net worth) because it measures the value of all new goods and services produced in a country during a single year.

How this graph was created: From FRED’s main page, browse data by “Release.” Search for “Distributional Financial Accounts” and click on “Levels of Wealth by Wealth Percentile Groups.” From the table, select the “Total Net Worth” series held by an individual wealth quantile and click on “Add to Graph.” To change the units of the series to a custom index with integer periods, see here.

Suggested by Diego Mendez-Carbajo.

View on FRED, series used in this post: WFRBLB50107, WFRBLN09053, WFRBLN40080, WFRBLT01026

Consumption of goods and services during the COVID-19 recession

Some shirts, some shoes, but a lot less service

Posted on August 10, 2020

First, some background on the line graphs shown above and below: The zero “date” is the start of a recession. The x-axis “periods” are the number of months after the start date. And the data are from the BEA’s Personal Income and Outlay survey.

Now, what do they show? The main revelation is that real personal consumption expenditures on services have decreased since February 2020, the start of the current recession. And, at the time of this writing, expenditures on services remain below their pre-recession levels. The data show that consumption of goods has also decreased, but not as much, and it has largely recovered. So, shirts and shoes notwithstanding, there’s a lot less service.

This decline in spending on services is significant for two reasons:

  1. Personal consumption expenditures are the largest component of U.S. gross domestic product.
  2. Household purchases of services represent the majority of personal consumption expenditures, as seen in the pie chart above. (The red, Pac-Man-shaped segment is consumption of services last year.)

Our final FRED graph shows that, at the start of the Great Recession in December 2007, real personal consumption expenditures on services began to increase. At that time, households reduced spending on goods—both durable goods (automobiles, appliances, furniture) and nondurable goods (food, gasoline, clothing). A previous FRED blog post discusses the dips in household spending on goods during and after the 2007-2009 recession.

So, the recent decline in spending on services has meant lower personal consumption and reduced economic activity. As the economy opens back up, be sure to practice your three “W”s while shopping for goods and/or services: Watch your social distance. Wear your mask. Wash your hands.

How these graphs were created: From FRED’s main page, browse data by “Release.” Search for “Personal Income and Outlays” and click on “Table 2.8.6. Real Personal Consumption Expenditures by Major Type of Product, Chained Dollars.” From the table, select the “Durable goods,” “Nondurable goods,” and “Services” series and click “Add to Graph.” To change the units of the series to a custom index with integer periods, see here. For the pie chart, start from the release for real personal consumption expenditures, check the relevant series, and click “Add to Graph.” From the “Edit Graph” panel, use the “Format” tab to select graph type “Pie.”

Suggested by Diego Mendez-Carbajo.

View on FRED, series used in this post: PCEDGC96, PCENDC96, PCESC96

U.S. trade during COVID-19

Imports and exports have plummeted differently

Posted on August 6, 2020

The recession caused by the COVID-19 pandemic has included a precipitous decline in U.S. trade: The FRED graph above shows that both imports and exports have declined more than 20% relative to a year ago. This decline may not be too surprising, given that international trade flows are usually more volatile than domestic economic activity. Large changes in economic activity typically feature even larger changes in trade flows.

The only other recent time period with such a decline was early 2009, during the Great Recession. But the graph above shows a key difference between the two recessions: Recently, exports have declined substantially more than imports, which is the opposite of what occurred during the Great Recession.

The second graph shows the difference between exports and imports—i.e., the trade balance. During the Great Recession, U.S. exports increased relative to imports, narrowing the trade deficit. During the COVID-19 pandemic, U.S. exports decreased relative to imports, widening the trade deficit.

This difference may stem from the different natures of the two recessions. Imports often decline during a recession more than exports do, but the COVID-19 pandemic may be an exception: Increased demand for imported essential medical goods to combat the pandemic may have caused imports overall to decline less than they would have otherwise. Of course, exports may have declined more than in a typical recession because of decreased economic activity in an environment of social distancing and related policies.

How these graphs were created: First graph: Search for “Imports of Goods and Services: Balance of Payments Basis” and select the relevant data series with the units “Percent Change from a Year Ago.” From the “Edit Graph” panel, use the “Add Line” tab to search for and select “Exports of Goods and Services: Balance of Payments Basis.” Finally, select the period as 2007-01-01 to the present. Second graph: Again, select “Exports of Goods and Services: Balance of Payments Basis” and use the “Customize data” option to search for and add the series “Imports of Goods and Services: Balance of Payments Basis.” In the formula bar, type a-b and click “Apply.” Finally, select the period as 2007-01-01 to the present.

Suggested by Matthew Famiglietti and Fernando Leibovici.

View on FRED, series used in this post: BOPTEXP, BOPTIMP


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