Economy Watch: Fed Report Details Recession’s Impact; Cyprus Asks for Bailout

A recent Fed report quantified a very painful aspect of the recent recession: Real median household income fell 7.7 percent from 2007 to 2010. Independent businesses' average optimism is relatively unchanged month to month, but is still low historically. And the island nation of Cyprus has asked for a bailout of up to $5 billion.

By Dees Stribling, Contributing Editor

Image courtesy Flickr user Symlinked

“Changes in U.S. Family Finances from 2007 to 2010: Evidence from the Survey of Consumer Finances,” which the Fed released this week, quantified one painful aspect of the very real economic impact of the Panic of 2008 and subsequent Great Recession. The report shows that over the four years from 2007 to 2010, real median household income before taxes fell 7.7 percent. But it wasn’t popping like a bubble: Median income had also fallen slightly in the preceding three-year period.

The pain of income loss hit most demographic segments, with only a few groups experiencing stable or rising incomes. In particular, median incomes moved higher for retirees. The decline in median income was most pronounced among more highly educated families, families headed by persons aged less than 55, and families living in the South and West, according to the Fed.

Over the same period, noted the central bank, median net worth fell 38.8 percent, reflecting to a great extent the sharp contraction in home prices. The only group that escaped such a drastic median net worth decline (more or less) was the top 10 percent of Americans in net worth.

NFIB Optimism Index Down Slightly

According to the National Federation of Independent Business on Tuesday, the organization’s Index of Small Business Optimism was essentially unchanged in May at 94.4, down 0.1 points. Such a reading is low by historic standards — from 1973 to 2006, it hovered around 100 — though it’s higher than the trough in 2008 and ’09 that took it down to about 80.

The index’s individual indicators were mixed, with expected sales in a three-month decline. However, some employment components improved and profit trends remained relatively stable after a sharp gain in April. Only 7 percent of the survey’s respondents characterized the current period as a good time to expand facilities, a reading unchanged from the previous month. Ten percent of the small business owners surveyed added an average of 2.6 workers per firm over the past few months, while 15 percent reduced employment an average of 2.1 workers. Unsurprisingly, the remaining 75 percent of owners made no net change in employment.

“Developments in Europe probably have their most damaging impact on the economy through adversely impacting uncertainty and expectations,” the NFIB noted in a statement. “A financial meltdown there will translate into less confidence in our ability to support the U.S. banking system, even though direct exposure is not large. Capital flight from European asset investments will roil U.S. markets.”

Diminutive Cyprus Asks for Bailout

If only they could all be like this: Cyprus Finance Minister Vassos Shiarly said on Tuesday that his country, too, needs an international effort to bail it out. The need, he emphasized, was “exceptionally urgent” so that the country can recapitalize its banks.

How much does the island nation need? In the range of 3 billion or 4 billion euros ($3.8 billion to $5 billion). In other words, a rounding error when it comes to larger economies in dire straits, such as Spain.

After a down day on Monday, Wall Street got back some of its luster on Tuesday upon digesting putatively hopeful words from Ben Bernanke about the Fed’s willingness to do more for the economy (although he didn’t spell out what that means, as usual). The Dow Jones Industrial Average gained 162.57 points, or 1.31 percent. The S&P 500 was up 1.17 percent and the Nasdaq advanced 1.19 percent.

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