Meet the Author

O. Emre Ergungor |

Assistant Vice President and Economist

O. Emre Ergungor

Emre Ergungor is an assistant vice president and economist in the Research Department at the Federal Reserve Bank of Cleveland. He is responsible for the household finance section of the Banking Policy and Analysis Group, which conducts research on regulatory policy and banking issues and provides advice on financial policy formulation. He also oversees the Federal Reserve System’s Muni Financial Monitoring Team (FMT), which monitors municipal bond markets, state and local funding, and public pension funds. Dr. Ergungor specializes in research related to financial intermediation, information economics, housing policy, and credit access in low- to moderate-income households.

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Meet the Author

Patricia Waiwood |

Research Analyst

Patricia Waiwood

Patricia Waiwood is a research analyst in the Research Department of the Federal Reserve Bank of Cleveland. She joined the Bank in October 2011, and her work focuses on macroeconomics, financial economics, and banking.

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Meet the Author

Caleb Brantner |


Caleb Brantner is a former intern in the Research Department of the Federal Reserve Bank of Cleveland.


Economic Trends

Changes in Households’ Balance Sheets

O. Emre Ergungor, Patricia Waiwood, and Caleb Brantner

For a few years before the recession, Americans had reason to feel richer. Their wealth was nearly seven times their income in 2005, and the situation remained that way until the recession began. Following the 2008 financial crisis, the ratio of wealth-to-income fell back to its long-term trend. Since then, household wealth has been growing faster than income, having reached, once again, nearly six times income in the first quarter of 2013. Does the similarity of this growth now and before the crisis give cause for concern? Our conclusion is: no. Households have been more cautious during the recovery, and the drivers of household net worth are different this time.

One of the marks of the pre-recession period was that households financially overextended themselves. Yet a quick look at households’ current balance sheets shows that consumers aren’t as highly leveraged as they were before the recession. Yearly growth in households’ total liabilities slowed and then stalled during the recession, and even now, that metric sits at zero. On the other side of households’ balance sheets, yearly growth in households’ assets dove to near -20 percent during the recession. However, the metric regained positive territory in late 2009 and now stands at about 8 percent. Meanwhile, yearly growth in personal consumption expenditures (PCEs) dropped during the recession but recovered shortly thereafter. More recently, it reached a post-recession high (5.34 percent) in the third quarter of 2011 and has been falling since. In the first quarter of 2013 it fell further, to 3.32 percent.

Interestingly, post-recession growth in PCEs has not tracked the wealth-to-income ratio as it did before the recession; in other words, growth in PCEs is lingering while the wealth-to-income ratio rises. Perhaps one reason that PCEs are off to a relatively slow start is that consumers’ expectations about their financial condition in the future are muted. According to the University of Michigan’s monthly Survey of Consumers, Americans are slowly raising their expectations of personal income growth. The survey shows that the mean probability that personal income will increase during the year ahead reached 41.7 percent at the end of 2012. Although this figure is substantially lower than pre-recession highs, it shows that expectations are slowly gaining steam.

A look at consumer debt gives us insight into consumers’ borrowing behavior of late. During the recession, loans were harder to obtain, as banks began tightening their lending standards. After the recession ended in mid-2009, banks began gradually loosening their restraints on consumer loans in order to fuel lending. Concurrently, the net percentage of loan officers willing to make new installment loans has reached a new high, according to the Senior Loan Officer Opinion Survey.

Before the recession, loan standards were relatively low, which fueled irresponsible lending. Currently, loan standards are looser than pre-recession standards, in order to kick-start lending. With lower loan standards and expectations for higher income in the future, will Americans return to their excessive borrowing behavior?

During the recession, delinquency rates were dangerously high. Following the recession, residential real-estate loan delinquencies reached 11.26 percent of average loan balances. Commercial real-estate loan delinquencies reached 8.78 percent, while credit card delinquencies reached 6.61 percent. The lowest percent of delinquency rates came from commercial and industrial loans at just 4.32 percent. Now, however, various loan delinquency rates, save for residential real estate loans, have descended to pre-recession levels, as the proportion of households’ incomes devoted to paying down debt continues to smoothly decline.

That is not to say that households are completely unleveraged. In fact, outstanding consumer credit stood at $2.82 trillion in April. Notice, though, that while the amount of nonrevolving credit (such as student loans and auto loans) in the economy is increasing, the amount of revolving credit (such as credit cards) hasn’t changed much at all over the past few months.

In conclusion, consumers seem to be proceeding with caution. Their expectations about their financial condition in the future are gradually improving, but they’re not reverting back to the low-savings, high-spending behavior that characterized the pre-recession period.