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Recovery From the Recession: Are You Better Off Now?

This article was written by in Economy. 16 comments.

It’s easy for me to turn the pages of my life back to December 2007, at the very beginning of the recession that featured the failure of Wall Street, tightening of the credit market, and damage to worldwide wealth in real property and in the stock market. All I need to do to determine my situation at that time is to look at the end-of-year balance sheet I shared, listing my account balances, as well as the end-of-year income statement.

There is no question that I am better off from a financial perspective today than I was at the start of the recession. I had help over these past few years from a growing business that thrived during the heart of the economic downturn — perhaps even because of the economic downturn. When I shared my end-of-year balance sheet for 2011, it’s clear my finances had improved over the course of the recession, but by the end of last year, I had removed my business finances from my personal finance reports to keep the entities separate.

My personal situation conforms with 32 percent of those surveyed by Pew Research Center in a study intended to chart the financial progress of all self-identified middle-class households in the United States over the past four and a half years. 65 percent of the respondents are not in better financial shape today than they were in December 2007. This set of data is just one piece of the survey which goes on to show that the economic experts that had been warning of the threat of a lost decade since the fallout of the recession were right on the money.

Putting the self-identified “middle-class” term aside, the study looks at the middle-income tier, households earning two-thirds to double the median household income in the United States.

  • Continuing a 40-year trend, this middle-income tier shrank in size during the last decade. The tier is now comprised of 51% of all adults, down from 61% in 1971.
  • The middle-income tier now earns only 45% of all income earned in the United States, down from 62% in 1971.
  • During the most recent decade, the “lost decade,” median income of the middle-income tier dropped 5%.
  • During the same time period, median wealth or net worth declined by 28%.

For the most part, I would expect Consumerism Commentary readers, while many will fall into the middle-income tier, might have seen financial success that doesn’t match the results illuminated by this survey from the Pew Research Center. The readership here may not be representative, but the survey does seem to conform with data from the census.

The economic narrative the middle class tells about itself through its responses to the Pew Research survey is consistent with the story told by government economic and demographic trend data. For the half century following World War II, American families enjoyed rising prosperity in every decade — a streak that ended in the decade from 2000 to 2010, when inflation-adjusted family income fell for the middle income as well as for all other income groups, according to U.S. Census Bureau data.

Our assumptions about the United States economy and the stock market seems to stem from this post-war experience. The United States was a powerhouse after World War II, with incredible economic expansion. Perhaps due to recency bias, the general economic and investing community remains convinced that the pace of growth the country experienced in the second half of the twentieth century is sustainable. It’s possible that certain markets globally might produce growth that allows for asset appreciation providing the legendary 8 percent long-term stock market return and economic expansion above the rate of inflation, both expectations we’ve chiseled in stone for our own country, but the goals and expectations we are setting domestically may be well out of line.

The Land of Economic Opportunity may no longer be here in the United States. Sure, there are always opportunities for new businesses and ways for entrepreneurs to start businesses that succeed phenomenally, but there may be better and more diversified opportunities in other developing nations — those whose periods of runaway expansion are yet to come.

This leaves a few questions to consider.

First, are you better off now than you were at the start of the recession? How has your recovery been? It’s one thing if your wealth has recovered to the point it was in December 2007, but have you been able to make up for lost time? Were you not significantly affected by the recession?

Also, do you expect to thrive financially in the United States over the next decade? Even ten years ago, financial advisers were quick to point out the need for building a globally diversified portfolio, adding international stocks into the mix of investments. The hype may have been unnecessary — American companies have long been globally diversifying their business, so investing in American companies who are building their businesses in overseas markets are handling a good portion of that diversification for you.

Nevertheless, if you think that China, India, and Brazil are showing opportunities for the kind of growth the United States had been known for following World War II, if you want the kind of returns the stock market historically promises, you’re going to want to be invested there. Is America still the Land of Opportunity from a wealth perspective?

Photo: danielmoyle
Pew Research Center

Published or updated August 23, 2012.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 16 comments… read them below or add one }

avatar 1 Anonymous

As it turned out, my wife and I came out of the last recession in the very best financial shape of our lives. In fact, we were able to retire earlier than we had thought possible, because we reached our “drop dead money” goal so much faster because of the recession.

We can’t claim all the credit for this, but we did know about the economic cycle, and we knew that that “good times” of the mid-2000s would come to a screeching halt. We didn’t know when, but we knew it was inevitable – we’re old enough to have seen this happen many times before. (And we paid the price too, so that knowledge didn’t come cheap.)

Therefore, we had all our personal debt paid off before the crash, with the exception of the tail end of a car loan and our home mortgage. We also used the good times to max out our 401k, IRA and HSA accounts. No questions asked, we just maxed it all out, living standard be darned.

A lot of our 401k/IRA investments were in money market funds when the big crash hit, so we were spared the devastation others felt. But (and this is where I truly can’t claim any credit) I got back in the stock market, boots and all, the first two weeks of March, 2009.

I just couldn’t stand it any longer. There were bargains everywhere I looked! I was beside myself. I was quite active on Seeking Alpha and Motley Fool at the time, and I remember the relentless blast of negativism. The world was going to end and the worst was yet to come. Doom and gloom everywhere. But Warren Buffett’s mantra of being greedy when others run scared rang in my ears and I jumped. Look back, I see it as divine intervention, because who could have known I got in at the very bottom of the market? This is not supposed to happen, and I certainly didn’t try to. I was happy if the market fell even further, because I was convinced I got good value, and in time that would win out.

And I was also convinced that the cycle would come back up. It always does – without fail. So I had to put my money where my mouth was. I went so far as to borrow against my 401k, because those were not going to get anywhere near the gains I could get from individual stocks. I paid 7-8% on those loans and doubled or tripled my money. This isn’t something I’d advise anybody to do, but the circumstances were just so unusual I couldn’t sit still. I worked 18-20 hour days just to do all the research on the stocks I was lining up. I recall how often I would see the Bill and Melinda Gates Foundation showing up on the filings for smaller stock, where they just jumped in and bought huge positions in the stocks I was looking at.

I just didn’t have enough money to make a REAL killing. :) I remember kicking myself for all the other mistakes I made earlier in my life. This was the jackpot moment and I was running out of powder. Arghh!!!

I still remember the ones which got away. I was looking at Royal Caribbean Lines, for example: I knew the company was not going to go out of business and at $6 a share I couldn’t lose. It’s over $25 today, But that’s not the only one – it was like shooting fish in a barrel – you couldn’t miss. There were hundreds. I’m happy to say the ones I did buy did even better than that. But that’s what you get when you aim for the recession. That’s when you get your drop dead money stocked up really fast and heavy.

That’s why I’m so passionate about trying to draw people’s attention to the economic cycle. I’m firmly convinced the biggest gains anyone of us can make in our quest for our drop dead money is in a recession. In the good times, everybody makes money, but that money often disappears when the good times end. But everything you get in a recession pretty much just goes up.

In fact, because I am so passionate about this aspect, several friends urged me to start a blog about it. That’s what I’ve started doing. Nothing dramatic yet, but that’s what I’m all fired up about. Bet you couldn’t tell :)

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avatar 2 Luke Landes


Thanks so much for your detailed reply! I can tell you are passionate about it. But *how* did you know Royal Caribbean Lines would not go out of business? I think you made a guess there. The market didn’t know, thus the low valuation. It could have gone either way. For everyone who did the research to determine they would stay in business, other did research and came to the opposite conclusion. And you ended up guessing rightly, which is awesome… but lucky.

The Motley Fool was one of my inspirations too (well, the message boards, *not* the articles) before starting this site.

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avatar 3 Anonymous

That’s an excellent question, Flexo!

Nobody totally knows the future – that’s for sure. However… consider this:

You can start with what you DO know: not all companies are going to go under.

There are thousands of listed companies, and never EVER has all of them gone under. In fact, I don’t think at any point since the Great Depression, when the stock market was still pretty much in its infancy, has more than, say, 10% of the stocks gone under in any given recession.

And the ones that are not going to make it are usually not that hard to spot. Companies usually fail because of two reasons: too much debt and not enough brand strength. Heinz Ketchup actually prospered in the Great Depression, because they had no debt and a strong brand. There are always companies who will do well, no matter what.

And therefore your efficient market assumption would dictate that stocks like those are never a bargain, never on fire sale.

That assumption is true most of the time, but not all of the time. Especially not in recessions.

At the end of 2008, just about every company was undervalued by enormous amounts. Caterpillar, for example, was around $25 and I “knew” they weren’t going to go under. They didn’t have a crushing debt load, and they had unsurpassed brand strength. And if the government was going to follow through on their infrastructure spending threats, CAT would surely benefit. Nothing about the future is written in stone, but anyone with a lick of sense could “know” that CAT would survive and recover. That was another one I passed on, but only because there were others with more upside potential. But if you went for CAT, you would still have tripled your money in three years. Not too shabby.

Here’s the juicy thing about recessions: the market is almost inevitably inefficient then. That’s because there are too many investors (in the last recession it was the hedge funds) that take on too much debt with the ever-rising stock assumption as collateral. Those people had to sell at any price to meet redemption requests and margin calls. That’s why preference shares were selling for 25 cents on the dollar, effectively paying 25% dividends per year. Unheard of, but there it was.

That’s not efficient.

But it’s lovely if you have cash.

Unfortunately, those bargains only come along in a recession, and that’s only once in ten years or so. You never know when it’s going to come, but you know it will. And if you don’t have cash, all you have is fisherman stories of the one that got away. :)

Final note: remember, I ended up passing on RCL, which in hindsight that worked out beyond my wildest expectation for me. THAT I could not have known. I knew all my candidates (like CAT) would work out well. But I did not know which one would do the best. In the end some others I passed on did better, but I am just grateful I had the foresight to have some dry powder and the extremely good fortune of hitting the market at its low point. That, I had no way of knowing would happen.

But… (long, deep breath) if I had enough to add RCL to the mix, just think how nice it would have been! Sorry, I just can’t help it! :)

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avatar 4 Anonymous

William is right about the investment opportunities in early 2009. Some very strong brands were selling for stupid discounts. I bought Harley for about $17 and then sold a year later for a 100% profit. Today its at about $43. Harley had fairly healthy financials at the time, though their revenue was down. I knew it was a steal given the brand in question. Its not like people are going to just stop buying Harleys or that Harley would simply die. When people get your brand name tattooed on their body that is a good indicator that your brand will survive.

Harley is just one other example. There were many very strong companies selling at steep discounts in the middle of the financial crisis. It wasn’t hart to find household names with piles of cash selling at PEs of under 10.

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avatar 5 Anonymous

As for your second question: I’m an immigrant and, like most immigrants. I truly believe the USA is the land of opportunity. And it will be going forward.

Is it perfect? By no means.

But show me a better country. The BRIC countries may have better long term growth prospects, but America is big enough and diversified enough that anybody can do well here.

Provided of course that they pay attention to the economic cycle, because that’s when the quantum jumps happen. :)

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avatar 6 Anonymous

I’m making more salary now than i did in 2007. However, my city, county, and state have all raised taxes accordingly. In addition, food prices are higher. So even though I’m making more, my standard of living has not changed.

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avatar 7 Anonymous

In early to mid-2007 I embarked on a campaign to “set-up” for retirement. I reduced debt to zero (I didn’t have much just a car loan) and worked hard at capturing the gains I’d made in the market through my 401(k) and transferring them to a much more conservative investment mix in a traditional IRA. That might seem like very fortuitous timing but it also set me up for a stressful 2008. I retired in January of 2008 and watched the drop in value with nervous doubt about the retirement decision. With the more conservative portfolio I fared better than some but took a hard hit on bottom line. Since about March of 2009 things began looking better. Since my retirement is dependent on my fixed (pension) income and has not yet demanded support from my saving I managed the weather the recession. In retirement my net worth has grown a little over 23%; some of it due to market recovery and some of it due to spending needs that are currently less than my fixed income.
The second question is a bit harder to answer as the words retired and thrive aren’t necessarily compatible. Although I monitor my investment allocations I don’t actively trade or mange them – Thriving sounds way too much like work. ;-)

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avatar 8 Anonymous

“Thriving sounds way too much like work. ;-)”

Love that!

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avatar 9 wylerassociate

I didn’t take too much of a hit during the recession. I was able to pay off my credit card debts & student loans. Also, my salary has gone up each year which has been good but nobody knows what will happen in the future especially coming up with the “fiscal cliff” later this year.

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avatar 10 qixx

Since i used to post these on the monthly balance sheet post (the monthly post stopped) perhapse an update is in order

Assets $15,590.19
Liabilities -$28,641.31
Total -$13,051.12

Last month’s total -$13,055.29
Change over last month $4.17
Last year’s total -$21,862.26
Change over last year $8,811.14

Starting Point Jan 2011 -$26,191.94
Change since Jan 2011 $13,140.82

Since i was not tracking my finances really at all before Jan 2011 this is as far back as i can go. Looking at my numbers i’d say i am definitely in better shape. While this looks good i would actually say my situation is not really different than it was. I am still struggling to get out of being grossly underpaid and underemployed. The financial stress is still there. I’d say i’m currently in a better state of poor shape – but still not in the realm of poor shape.

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avatar 11 Anonymous

I could say that we are, too, are in a better financial position than we were before the recession. Ww have less debt, nearing zero debt, started with our emergency savings, CDs, and a few stocks investment. We are also approaching the maximum contribution for our 401K this year. It was really difficult at first as food, clothing, and other expenses also increase. It takes a lot of discipline and hardwork. But we are hopeful. We are positive. We are looking forward a better, if not consistent, financial environment in the coming years.

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avatar 12 Anonymous

We are not better off at this point, but that is only because I voluntarily quit my job to be a freelance writer. The income is steadily building, as is my husband’s, so I think in a few years, we should be in a very good position.

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avatar 13 Anonymous

I’m better off now. In 2007, I was a junior in college. I didn’t really have any assets and was accumulating debt from student loans (though it was a quite reasonable amount; I only borrowed about 4.5k/year for an engineering degree…)

Now I still have around $8k in student loans, but have been paying that off diligently. I have around $15k in savings. I have a good job.

It’s kind of weird to realize, but this economic environment is all I’ve really know as an adult. If/when things get better, it’s all going to seem so good to me. I’ve read personal finance articles from when interest on savings accounts was 4%, and I can’t even imagine what that must have been like.

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avatar 14 tbork84

I would say that I am better off since 2007, but that is mostly due to me increasing my earnings as I have entered the workforce. I have been able to avoid CC debt and keep my focus on my retirement saving (401K and Roth), and since I am just starting out, I know that they will have plenty of time to grow if I max them out now.

Since I started out during this economic crunch, I have been lucky twice over: to avoid any hit to my savings at the onset since I had none, and to learn some very important financial lessons relatively early on in my life.

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avatar 15 Anonymous

Yes we’re better off now. We made it through the recession fine. I kept my job the whole time and our investments lost value but recovered and were up overall. Compared to 2007 my net worth is up around 40-50% and my pay is up about 20%. But a lot of that increase was between 2007 to 2008. From 2008 to now my net worth has only gone up ~15% and the pay is only up ~6%.

I expect to do fine in the next decade too. Course I can’t predict the future. But I have no reason to think anything really bad will happen. If I remain employed and keep saving we should be fine.

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avatar 16 Cejay

I am not better off than I was since I am worried about my job for the first time. I used to think that mjy ob was recession proof but now we have had several small lay offs and have heard that there is a big one coming down the pike. I do feel that I am better able to handle a lay off than I was at any time in my life. But we are nearing the point in our life when retirement is right around the corner so we need to do all we can to maximize our 401ks.

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