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

Consumer Deleveraging May Be Over

O. Emre Ergungor and Patricia Waiwood

The recently published results of the Federal Reserve’s triennial 2010 Survey of Consumer Finances show that many families cut up their credit cards during the financial crisis.The number of families holding credit card debt of any amount declined to its lowest levels in more than 20 years. The decline was pronounced in all family-income percentiles.

Meanwhile, families in the lowest-income percentile have been reporting an increasing use of installment debt since the 2007 survey. Installment debt, which is nonrevolving and used for purchasing large durable items like autos, is relatively more stable. The lowest-income families are holding their highest levels of installment debt since 1989.

However, with the exception of a brief period that covers the second half of 2010, real growth in consumption expenditures has outpaced that of personal income every month since the second quarter of 2009. The last time the deficit was so consistently high was in late 2005.

To finance increasing outlays when the money coming in doesn’t grow as fast, consumers can either increase their level of borrowing or save less of their income. Our data suggests that consumers are tapping both sources.

Total household borrowing as a share of disposable income has been increasing since the second quarter of 2009. This increase comes principally from nonrevolving debt, not revolving debt like credit cards. In fact, the nonrevolving debt as a percent of disposable income is at its highest level ever.

On the other hand, household savings, which we report also as a share of disposable income, has fallen by half since it peaked at 6 percent in June 2010.

Yet if households are truly “in the red,” why has their debt burden been declining smoothly since the end of the recession? The reason is historically low interest rates. Low rates are translating into smaller percentages of consumers’ income being dedicated to servicing their financial obligations.

Our renewed affection for debt may be just warming up. The Senior Loan Officer Opinion Survey recently reported a sharp increase in demand for consumer loans. On the supply side, the same survey reported the highest willingness by lenders to make consumer loans since the early 1990s. The net easing of consumer lending standards confirms that financial institutions are indeed willing to lend more in both the revolving and nonrevolving debt categories. Even though the events of the recent crisis are fresh in our collective memories, it looks like consumer debt markets may be getting ready to party like it’s 2003.