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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Economic Trends

Household Financial Position

O. Emre Ergungor and Patricia Waiwood

In the years preceding the stock market and housing bubbles, household wealth grew faster than incomes, leading Americans to believe that they were getting richer. As the bubbles burst, the wealth-to-income ratio took a dive and returned to its long-term trend. The adjustment took place as households constrained their spending and reduced their debt. After peaking in 2008, household consumption expenditures dropped slightly (1.69 percent), hitting a trough in 2009. Yet since then, the wealth ratio has stabilized, and consumption expenditures have resumed growth, already climbing 2.2 percent beyond the pre-recession peak.

While people often associate the word “savings” with money in the bank, an increase in the savings rate also means that people are paying down their debts. Before the downturn, in April 2005, the personal savings rate reached a record low of just 0.8 percent. Since then, however, the rate has steadily increased, peaking at 6.2 percent in 2008 and maintaining rates above 4.3 percent. Currently, the savings rate sits at 3.8 percent, which is roughly where it was in 2004.

Outstanding home mortgage debt is still contracting, reflecting record write-offs and reduced demand for homeownership. Revolving consumer credit, which primarily includes credit card balances, plummeted in 2008 and is currently 1.7 percent below year-ago (third-quarter 2010) levels. Nonrevolving consumer credit, which consists of the secured and unsecured credit for student loans, auto financing, durable goods, and other purposes, is actually 4.4 percent above year-ago levels.

Part of the decline in outstanding debt is attributable to people defaulting on their obligations and reducing their debt in bankruptcy. Nonbusiness bankruptcy filings spiked dramatically in October 2005—before the federal government enacted the Bankruptcy Abuse Prevention and Consumer Protection Act, a sweeping reform of the U.S. bankruptcy code designed to make it more difficult for debtors to file for Chapter 7 bankruptcy. Following an initial postreform decline, bankruptcy filings started to increase, and as of June 2011, the number of bankruptcies had reached 118,000.

Certain delinquency rates are not likely to return to their pre-crisis levels soon. As of the third quarter of 2011, delinquency rates for residential real-estate and commercial real-estate loans remain extremely elevated (10.2 and 6.7 percent respectively). On the other hand, credit card and commercial and industrial (C&I) loan delinquencies are at or below their respective pre-crisis levels. In the third quarter of 2011, these rates sat at 3.5 and 1.8 percent, respectively.

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. Be that as it may, the indexes still have a ways to go before returning to pre-recession levels.