When the economic statistics are reported each month, it’s easy to forget that they are just averages. Economic growth, unemployment, home prices and even inflation vary enormously from one place to another and from one part of the population to another. As a result, changes in the national numbers can create a false impression. The averages may be improving because some groups of Americans are faring a whole lot better, while other groups in the population may not be benefiting at all. But you can only determine the real trends if you consider the people who are being left out.
When the economy is humming along steadily, the variations are not so important. During a downturn, on the other hand, or in the early stages of an upturn, divergences become much greater. So today, whether you’re trying to assess the economy, anticipate the direction of the stock market or gauge the prospects of candidates in the November elections, you have to consider the individual economic situations of many different groups of people. There are lots of ways to divide up the U.S. population, of course, and some of them overlap. Here are the most important:
Wealth and Income
During the recent recession, net worth fell most sharply for middle-class families with incomes between $50,000 and $100,000. The reason is that home equity represents a disproportionately large percentage of their wealth. Moreover, home prices are actually slightly lower today than they were when the recovery began. By contrast, the stock market has gained about 50% since the economy began its slow recovery in 2009. That has greatly benefited Americans with six-figure family incomes, since they are more likely to have substantial investments in stocks and mutual funds. As a result, the most affluent families with substantial exposure to the stock market have been seeing a rebound for more than two years, while middle-class families that have most of their wealth in their homes are still in a depressed economy. So are lower-income families who have minimal assets and are more directly affected by unemployment, currently 8.2%, which has remained at recession levels since the recovery began. And here’s another wealth-related variation: as a general rule, groups with the lowest incomes and net worths feel changes in gasoline prices and food prices the most.
Schooling is one of the most important determinants of unemployment. As of June, the unemployment rate among Americans 25 and older was 12.6% for those without a high school diploma, 8.4% for those with a high school diploma but no college, but only 4.1% for those with a college degree. Since the recovery began, unemployment has come down slightly for all three groups, but college graduates are operating in an economy where chronic unemployment is relatively rare — and that’s even truer for Americans with any kind of graduate or professional education. Those with college degrees, however, account for many of the families with incomes above $50,000, however, so their specific economic situations depend greatly on how much they are exposed to the real estate market vs. the stock market.
As you might expect, wealth increases as people get older, and employment prospects also improve. The decline in net worth during the recession was greater than average, however, for those under the age of 44, and less than average for those over the age of 55. The unemployment rate as of June was nearly 24% for teenagers, nearly 14% for people in their early 20s, 8.2% for those 25 to 34, and below average for those 35 and up. Older Americans generally experience slightly higher rates of inflation, however, because of rising health care costs.
Race and Ethnicity
Adult unemployment rates are below average for whites and Asians, above average (11%) for Hispanics, and higher still for African Americans (14% plus). The wealth picture is similar. At the peak, non-Hispanic whites had three to six times the net worth of the rest of the population. And during the recession, the net worth of nonwhites and Hispanics fell further in percentage terms than that of non-Hispanic whites.
All economics is local, and income levels vary from one neighborhood to another. Housing markets are regional and many industries are too. The recession of the early 1970s took a heavy toll on the industrial Midwest, while the oil price decline in the 1980s hit Texas hard. Today states and local governments that are financially overextended are cutting government jobs, while those that are better managed have below-average unemployment. Housing markets that overbuilt — such as Florida and Nevada — are still deeply depressed, while prices for Manhattan apartments are relatively solid.
Describing the current economy as a recovery that is simply not progressing fast enough is a fundamental mistake. In reality, a minority of the U.S. population — typically the oldest and most affluent part — has been in a moderate recovery for more almost three years, while the majority remains thoroughly mired in recession. Those who have been left out are generally the poorest, the least well educated and the youngest.
It is probably always true that the most established and most competitive prosper first when the economy rebounds, while the most vulnerable benefit only with a lag. But the current economy is not generating new jobs fast enough to keep up with population growth and also to start broadening the recovery to the majority of the population. Until, say, two-thirds of the population feels the economic expansion, it is not just a disappointingly slow recovery — it is really no recovery at all.