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

Beth Mowry |

Research Assistant

Beth Mowry

Beth Mowry was formerly a research assistant in the Research Department of the Federal Reserve Bank of Cleveland. Her work focuses on labor markets and business cycles.

1.19.11

Economic Trends

Household Financial Position

Emre Ergungor and Beth Mowry

Household wealth took a dive in the recent recession from falling home prices and stock values, causing households to constrain spending and reduce their debt. After peaking in June 2008, consumer spending dropped markedly (3.4 percent) until it reached a trough in March 2009. Since that time, consumption expenditures have resumed growth and climbed 2.7 percent beyond the pre-recession peak.

The personal savings rate reached a record low of just 0.8 percent in April 2005 before the downturn and marched up dramatically in the ensuing months. However, it has steadily eased off recent highs exceeding 6 percent since last June and currently sits at 5.3 percent, roughly back to 1998 savings rates. While people often associate the word “savings” with money in the bank, the increase in savings rate also means that people are paying down their debts.

Outstanding home mortgage debt is still contracting, reflecting record write-offs and the decreased appetite for homeownership. Revolving consumer credit plummeted in 2008 and remains 9.8 percent below year-ago levels, while nonrevolving credit is just 0.1 percent shy of year-ago (2009:Q3) levels. Revolving credit primarily includes credit card balances, and nonrevolving credit includes secured and unsecured credit for student loans, auto financing, durable goods, and other purposes.

Part of the decline in debt is attributable to people defaulting on their obligations and reducing their debt in bankruptcy. Bankruptcy filings spiked in October 2005—before the federal government enacted the Bankruptcy Abuse Prevention and Consumer Protection Act, a sweeping reform of U.S. bankruptcy code meant to make it more difficult for debtors to file for Chapter 7 bankruptcy. Since that initial postreform setback, bankruptcies have risen more rapidly than ever.

Defaults and write-offs are not likely to return to their pre-crisis levels soon. As of the third quarter of 2010, delinquency rates for residential real-estate and commercial real-estate loans remain extremely elevated, while credit card and commercial and industrial (C&I) loan delinquencies have begun to abate.

Indexes of consumer sentiment and confidence still have a ways to go before recovering to pre-recession levels. However, the indexes 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.