Meet the Author

Bruce Champ |

Senior Research Economist

Bruce Champ

Bruce Champ was a senior research economist in the Research Department of the Federal Reserve Bank of Cleveland.

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Meet the Author

Sarah Wakefield |

Research Assistant

Sarah Wakefield

Sarah Wakefield was formerly a research assistant in the Research Department of the Federal Reserve Bank of Cleveland. She worked with financial markets and monetary policy.


Economic Trends

Household Financial Conditions

Bruce Champ and Sarah Wakefield

During the summer of 2007, the Bureau of Economic Analysis revised data in the National Income and Product Accounts going back to the beginning of 2004. The revisions caused increases in the personal saving rate over the period. Pre-revision estimates of the personal saving rate were negative from mid-2005 through the first quarter of 2007. The Bureau’s revisions pushed the saving rate to small positive values over most of the revision period. For example, in the first quarter of 2007, the saving rate increased from –1.0 percent to a revised value of 1.0 percent. Despite these upward revisions, the saving rate remains at historically low values. Windfalls from increasing home and stock prices have increased household wealth, thus enabling households to spend more of their disposable income. Although there has been a dramatic slowdown in the appreciation of home prices, rising equity prices contributed to modest increases in the wealth-to-income ratio during the second quarter of 2007.

Growth in outstanding home mortgage debt continued to slow modestly in the second quarter of 2007, reflecting a slowdown in home sales and housing prices. At its peak, home mortgage debt grew at a 15 percent annual clip. The huge run-up in housing prices, along with the refinancing of existing mortgages, fueled this growth.

Revolving consumer credit growth moderated in the second quarter of 2007, which resulted in a decline in the growth of total consumer credit. Much of this moderation in the quarterly data came from a substantial decline in consumer credit growth in April. However, consumer credit rebounded in May and June. July figures indicate revolving credit rose at a 6.8 percent annual rate, while nonrevolving consumer credit increased only 2 percent, primarily due to weak vehicle sales. It is important to note that any restriction of credit due to fallout from the recent turmoil in financial markets is not reflected in the latest data.

Thirty-day delinquency rates for credit card loans showed only a slight uptick in the second quarter of 2007. More significant in the second quarter was a rise in delinquency rates on residential real estate loans to 2.28 percent. As has been well publicized, the problem of high delinquency rates within mortgage markets is most acute in the subprime market, with 3.2 percent of conventional subprime mortgages 60 days past due in the second quarter. Delinquencies in conventional prime mortgages also experienced a small increase. Households with adjustable rate mortgages have been hardest hit. Higher mortgage payments due to rising or resetting rates have caused substantial increases in delinquency rates for these types of loans. Delinquency rates for subprime adjustable rate mortgages have nearly doubled since 2005.

Perhaps reflecting the weakening housing market, the Conference Board’s Index of Consumer Confidence fell substantially for the second consecutive month in September. This places the index at its lowest level since November 2005. After reaching a post-9/11 high in July, the latest numbers suggest a marked deterioration in consumer confidence in the last two months. The present situation component of the index was responsible for most of the decline, although the expectations component also experienced a modest decrease. Negative household perceptions of conditions in the labor market accounted for much of the decline. Households also indicated sharp downward revisions in their plans to buy homes and autos.

In contrast, the University of Michigan Consumer Sentiment Index’s preliminary September value held fairly steady, increasing less than a point. The index’s present situation component fell slightly, countered by a small increase in the expectations component.