Studies Show Consumer Income in Greatest Decline After Recession

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Wage growth rates may have outpaced inflation during the recession, but new studies show wages and household income have declined more in the economic recovery than in the recession itself. The data proves a significant disconnect between consumer income trends and those of the broader economy.

A recession is defined as two consecutive quarters of declining economic growth. The recession that began in December 2007 officially ended in June 2009, according to economists, who are pleased to report the economy has grown every quarter since. It seems almost logical to assume that the country's household income would grow roughly in tandem.

But income data pre-, mid-, and post-recession draw some conflicting conclusions about the state of the nation. Here are some key findings from a newly released study by Sentier Research (link opens PDF) (via New York Times):

HOUSEHOLD INCOME
Between June 2009, when the recession officially ended, and June 2011, inflation-adjusted median household income fell 6.7%, to $49,909. In contrast, household income fell 3.2% during the recession -- from December 2007 to June 2009.

TOTAL DROP IN INCOME
For the entire period from December 2007 to June 2011, real median annual household income has declined by 9.8 percent. A decline of this magnitude represents a significant reduction in the American standard of living and appears to be the largest in several decades.

LENGTH OF UNEMPLOYMENT
In the recession, the average length of time a person who lost a job was unemployed increased to 24.1 weeks in June 2009, from 16.6 weeks in December 2007, according to the Federal Bureau of Labor Statistics. Since the end of the recession, that figure has continued to increase, reaching 40.5 weeks in September, the longest in more than 60 years.

The study found that the 9.8% drop in income coincided with the rising unemployment rate (although the rate did drop slightly to 9.2% from 9.5% in 2009). According to New York Times, the finding draws several conclusions:

The number of people outside the labor force -- neither working nor looking for work -- has risen while hourly pay of employed people has failed to keep pace with inflation.

Many people who lost their jobs in the recession -- and remained out of work for months -- have taken pay cuts in order to be hired again ... A study by Henry S. Farber (link opens PDF) found "people who lost jobs in the recession and later found work again made an average of 17.5 percent less than they had in their old jobs."

So, with consumer incomes falling, one might expect consumer companies to be worried about future demand for their products.

But we've found several examples of consumer companies that have seen significant insider buying over recent months. Is this a signal that retail executives think consumers are in better shape than economic data suggests?

Insider executives seem to think these consumer stocks will overcome the industry's future barriers -- do you agree? (Click here to access free, interactive tools to analyze these ideas.)

List compiled by Eben Esterhuizen, CFA:

1. American Eagle Outfitters (NYS: AEO) : Operates as an apparel and accessories retailer in the United States and Canada. Net institutional purchases in the current quarter at 9.5M shares, which represents about 5.66% of the company's float of 167.85M shares. Over the last six months, insiders were net buyers of 579,634 shares, which represents about 0.35% of the company's 167.85M share float.

2. Hot Topic (NAS: HOTT) : Operates as a mall- and Web-based specialty retailer in the United States. Net institutional purchases in the current quarter at 4.2M shares, which represents about 10.27% of the company's float of 40.91M shares. Over the last six months, insiders were net buyers of 40,000 shares, which represents about 0.1% of the company's 40.91M share float.

3. Charming Shoppes (NAS: CHRS) : Operates as a specialty apparel retailer primarily for women in the United States. Net institutional purchases in the current quarter at 6.7M shares, which represents about 6.59% of the company's float of 101.61M shares. Over the last six months, insiders were net buyers of 35,000 shares, which represents about 0.03% of the company's 101.61M share float.

4. Luby's (NYS: LUB) : Engages in the ownership and operation of restaurants in the United States. Net institutional purchases in the current quarter at 1.2M shares, which represents about 7.46% of the company's float of 16.08M shares. Over the last six months, insiders were net buyers of 156,612 shares, which represents about 0.97% of the company's 16.08M share float.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.


Kapitall's Rebecca Lipman and Eben Esterhuizen do not own any of the shares mentioned above. Data sourced from Fidelity.

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