The Finances of American Households in the Past Three Recessions: Evidence from the Survey of Consumer Finances
The downturn in economic activity in the U.S. that began in December
2007 (as determined by researchers with the National Bureau of Economic
Research) has been noticeably deeper and has already lasted considerably
longer than the prior two recessions--those beginning in July 1990 and
in March 2001. In addition, a key difference between the current and the
past two recessions is the extent to which consumer spending and
residential investment have dropped since late 2007--that is, the extent
to which the household sector appears to have "led" the drop in
aggregate economic activity in this recession.
This paper uses
household-level data from the Federal Reserve Board's series of Surveys
of Consumer Finances to document three factors that appear to have
contributed to greater financial stress in the household sector in the
current downturn compared with the prior two:
1) substantial and
widespread reductions in home values that resulted in sizable erosions
of home equity and net worth for many homeowners;
2) markedly expanded
holdings of corporate equity among middle-income households which lost
significant market value, on net, as stock prices sunk; and,
3) greater
debt on household balance sheets and overall financial vulnerability
around the onset of the 2008-09 recession, particularly for those in the
middle of the income distribution.
Kevin B. Moore and Michael G. Palumbo