The Finances of American Households in the Past Three Recessions: Evidence from the Survey of Consumer Finances

Posted: 10 Mar 2011

See all articles by Kevin B. Moore

Kevin B. Moore

Board of Governors of the Federal Reserve System

Michael Palumbo

Board of Governors of the Federal Reserve - Flow of Funds Section; University of Houston - Department of Economics

Date Written: February 1, 2010

Abstract

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.

Keywords: Household net worth, consumer finances, business cycle, recession

JEL Classification: E21, E32, D32

Suggested Citation

Moore, Kevin B. and Palumbo, Michael, The Finances of American Households in the Past Three Recessions: Evidence from the Survey of Consumer Finances (February 1, 2010). FEDS Working Paper No. 06. Available at SSRN: https://ssrn.com/abstract=1782032

Kevin B. Moore

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Michael Palumbo (Contact Author)

Board of Governors of the Federal Reserve - Flow of Funds Section ( email )

Washington, DC 20551
United States
202-452-2296 (Phone)

University of Houston - Department of Economics ( email )

Houston, TX 77204-5882
United States

Register to save articles to
your library

Register

Paper statistics

Abstract Views
334
PlumX Metrics