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

Daniel Kolliner |

Research Analyst

Daniel Kolliner

Daniel Kolliner is a research analyst in the Research Department of the Federal Reserve Bank of Cleveland. His research interests include urban economics, banking, and economic history.

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Economic Trends

Household Financial Conditions

O.Emre Ergungor and Daniel Kolliner

During the Great Recession, household wealth fell nearly 20 percent. Due to the sluggish growth of the economy, it took five years for households to recover the lost ground. Since 2011, the growth of household assets and net worth has been on a strong upward trend. Should we worry about this trend, given that the Great Recession was preceded by a similar boom in household assets? We don’t think so. Unlike the pre-recession period, the current growth in assets is not carried on the shoulders of overextended consumers who are racking up substantial debt. Household liabilities have essentially been flat for almost two years.

In previous recessions, Americans’ homes typically retained their value, but during the Great Recession, the housing market was hit hard. From 2007 all the way to 2011, nonfinancial assets—basically housing—have been a drag on household wealth. Only in recent quarters did home values once again become the stalwart supporter of household balance sheets. Thus, the asset growth we observed in the previous chart has been primarily driven by the growth in financial assets.

With the hard lessons of the Great Recession still fresh in our collective memory, households have been slow to take up new debt in the last two years, and lenders have been slow to extend revolving consumer credit, which primarily consists of credit card debt. Revolving consumer credit balances plummeted in 2008 and are currently barely higher than their level in the third quarter of 2012. Outstanding home mortgage debt is still contracting due to record write-offs and reduced demand for homes in previous years. Nonrevolving consumer credit, which consists of secured and unsecured credit for student loans, automobiles, durable goods, and other purposes, is the only credit category that shows some sign of life. It is currently 8.5 percent above year-ago levels. Note, however, that the student loan component is entirely driven by federal government loans to students and does not reflect private market activity.

On a more positive note, declining credit balances and historically low interest rates have cleared household balance sheets of their dangerous levels of debt from the pre-crisis period. The financial obligation ratio, which expresses household liabilities, such as credit card payments, mortgage payments, home property taxes, and rent payments, as a percentage of disposable income, is at its lowest level since the third quarter of 1981.

The cautious behavior of American households is also manifesting itself in the savings rate. Before the downturn, in July 2005, the personal savings rate reached a record low of just 2.0 percent. Since then, the rate has steadily increased, peaking at 8.7 percent in 2012 due to high dividend and accelerated bonus payments before the rise in personal tax rates. Since that peak, households have maintained their savings rate above 4 percent, roughly where it was in 2004.

Parallel to their savings behavior, households have been circumspect in their spending, too. Consumption growth, up 3 percent since last year, indicates little appetite for spending. This is perhaps to be expected given that measures of consumer confidence and sentiment remain at the lowest levels of the 2001 recession (though they have recovered from their lows of the Great Recession). As confidence continues to improve, consumption growth should pick up pace.

Indexes of consumer sentiment and confidence have gained traction since early 2009, likely due in part to recent small payroll gains, stabilizing (though still depressed) home sales, and stock market performance this past year. But consumers still seem to be proceeding with caution.