American households have recovered only 45 per cent of the wealth they lost since the onset of the economic downturn in 2007, a new report released Thursday by the Federal Reserve Bank of St. Louis says.

The bank is one of 12 regional banks that together with the board of governors in Washington, D.C., make up the U.S. Federal Reserve central banking system.

In its annual report for 2012, titled After the Fall, the bank takes stock of the damage the financial crisis caused to American households and examines how they are faring today.

At the height of the financial crisis, Americans had a record-high debt-to-income ratio of 133 per cent and the lowest personal savings rate since the Great Depression. Between 2007 and 2010, average household wealth declined 15 per cent while median household wealth dropped 39 per cent, the report says.

Much of that wealth has since been recovered but not as much as some think, say the authors of the report, Ray Boshara and William Emmons.

"While household balance sheets have improved in the past few years — families are rebuilding their savings and paying down their debts — balance sheets have not yet fully rebounded," they write.

Inflation, population growth skews recovery

The Federal Reserve's Flow of Funds accounts released in March 2013 indicate that aggregate household net worth at the end of 2012 was $66.1 trillion US, nearly back to its pre-crisis peak of $67.4 trillion, but that figure does not take into account inflation, population growth and variability across households, the report said.

The authors point out that 62 per cent of the total recovery between the first quarter of 2009 and the fourth quarter of 2012 was due to higher stock-market wealth.

"Stock wealth is unevenly held, with the vast majority of stocks owned by a relatively small number of wealthy families. Thus, most families have recovered much less than the average amount," they write.

"Considering the uneven recovery of wealth across households, a conclusion that the financial damage of the crisis and recession largely has been repaired is not justified."

The number of households has also increased — by about 3.4 per cent between the third quarter of 2007 and the end of 2012 — Boshara and Emmons said, meaning wealth is "shared by more families than before."

Boshara and Emmons adjusted the aggregate household net worth figure for these effects and came up with a new measure: the inflation-adjusted net worth per household. That recalibration brought the percentage of wealth recovered since the crisis from 91 per cent down to a much less impressive 45 per cent.

Household balance sheets affect larger economy

Understanding how the microeconomic activity of individual households affects a country's macroeconomic performance is an area that is understudied, the authors say. But it is one that is becoming increasingly important given that weaknesses in household balance sheets, such as high levels of debts, low levels of savings and insufficient assets beyond home ownership, were "important contributors to the downturn and weak recovery," Boshara and Emmons write.

"Many economists now are calling the Great Recession of 2007-09 a 'balance-sheet recession,'" the authors write.

Gaining a better understanding of the links between household finances and the broader economy will be the mandate of the bank's newly launched research centre, the Center for Household Financial Stability, the report said.