War Room - Salon.com

Thursday, Feb 23, 2006 16:01 EST

What's in your wallet?

A new Federal Reserve report shows an after-inflation drop in average family incomes.

By Tim Grieve

In his State of the Union address last month, George W. Bush described an economy that is "healthy and vigorous." A new report from the Federal Reserve explains why it might not feel that way to you.

The Fed says that average family income, after adjusting for inflation, fell more than 2 percent between 2001 and 2004 -- a dramatic and unhappy turnaround from the 17 percent gain in average after-inflation income Americans enjoyed during the prior three-year period.

Of course, income averages tell only part of the economic story. Some of the other numbers are worse, and they suggest that the rich-getting-richer, poor-getting-poorer dynamic is alive and well in America today. For the poorest 20 percent of America's families, the Fed says, median net worth dropped 11 percent, to $7,500, between 2001 and 2004. For the richest 10 percent, it rose by a respectable 4 percent, to $924,100.

But even for those lucky ducks, the gains may be short-lived. The Fed says that a major part of the growth in net worth came from the explosion in housing prices over the last three years. If the real estate bubble finally bursts -- and it's sure feeling leaky in some parts -- those paper gains could disappear. Don't expect renters to shed any tears. The Fed says homeowners saw a 1 percent increase in their net worth over the last three years. For renters, it was a 22 percent drop.