The Finances of American Households in the Past Three Recessions: Evidence from the Survey of Consumer Finances Kevin Moore and Michael Palumbo Federal Reserve Board October 2009 Our views do not necessarily reflect those of the Federal Reserve Board or most of its staff. Moore and Palumbo (FRB) U.S. Recessions/SCF Oct 2009 1 / 27
Outline of Presentation Macroeconomic Backdrop: A Selective Comparison of the Past 3 U.S. Recessions Focus exclusively on the household/personal sector of the U.S. economy Moore and Palumbo (FRB) U.S. Recessions/SCF Oct 2009 2 / 27
Outline of Presentation Macroeconomic Backdrop: A Selective Comparison of the Past 3 U.S. Recessions Focus exclusively on the household/personal sector of the U.S. economy Analysis of Household-Level Data in the Survey of Consumer Finances Compare changes in net worth across the distribution of U.S. households in the current and previous two recessions All results derive from cross-section ( not panel ) data This substantially limits the conclusions we can draw Moore and Palumbo (FRB) U.S. Recessions/SCF Oct 2009 2 / 27
Outline of Presentation Macroeconomic Backdrop: A Selective Comparison of the Past 3 U.S. Recessions Focus exclusively on the household/personal sector of the U.S. economy Analysis of Household-Level Data in the Survey of Consumer Finances Compare changes in net worth across the distribution of U.S. households in the current and previous two recessions All results derive from cross-section ( not panel ) data This substantially limits the conclusions we can draw Time permitting, I’ll conclude by: Briefly describing a re-interview of 2007 SCF respondents that is currently underway Placing our paper’s (limited) results in the context of the current macroeconomic outlook Moore and Palumbo (FRB) U.S. Recessions/SCF Oct 2009 2 / 27
The Timing and Duration of the Past 3 U.S. Recessions Business Cycle Reference Dates Duration, in months Peak to Quarterly dates in parentheses trough December 2007 (IV) through July 2009 19+ March 2001 (I) November 2001 (IV) 8 July 1990 (III) March 1991 (I) 8 Moore and Palumbo (FRB) U.S. Recessions/SCF Oct 2009 3 / 27
The Timing and Duration of the Past 3 U.S. Recessions Business Cycle Reference Dates Duration, in months Peak to Quarterly dates in parentheses trough December 2007 (IV) through July 2009 19+ March 2001 (I) November 2001 (IV) 8 July 1990 (III) March 1991 (I) 8 Cumulative declines in real GDP: 2008-09 recession: 3-3/4% 2001 recession: real GDP did not fall (cumulatively, at least) 1990-91 recession: 1-1/2% Moore and Palumbo (FRB) U.S. Recessions/SCF Oct 2009 3 / 27
Macroeconomic Activity around NBER-dated Peaks Total Payroll Employment Real Income from Wages and Salary Index: 100 = Business cycle peak Index: 100 = Business cycle peak 102 104 July 1990 Peak July 1990 Peak March 2001 Peak March 2001 Peak 101 December 2007 Peak December 2007 Peak 102 100 100 99 98 98 97 96 96 94 95 94 92 −12 −9 −6 −3 peak 3 5 7 9 11 14 17 20 −12 −9 −6 −3 peak 3 5 7 9 11 14 17 Months from NBER peak Months from NBER peak Source. Bureau of Labor Statistics. Source. Bureau of Economic Analysis. Moore and Palumbo (FRB) U.S. Recessions/SCF Oct 2009 4 / 27
Macroeconomic Activity around NBER-dated Peaks Real Disposable Personal Income Real Personal Consumption Expenditures Index: 100 = Business cycle peak Index: 100 = Business cycle peak 109 106 July 1990 Peak March 2001 Peak 107 December 2007 Peak 104 105 102 103 100 101 98 99 July 1990 Peak March 2001 Peak 96 97 December 2007 Peak 95 94 −12 −9 −6 −3 peak 3 5 7 9 11 14 17 −12 −9 −6 −3 peak 3 5 7 9 11 14 17 Months from NBER peak Months from NBER peak Source. Bureau of Economic Analysis. Source. Bureau of Economic Analysis. Moore and Palumbo (FRB) U.S. Recessions/SCF Oct 2009 5 / 27
Macroeconomic Activity around NBER-dated Peaks Real Residential Investment Sales of New Homes Index: 100 = Business cycle peak Index: 100 = Business cycle peak 160 July 1990 Peak 160 150 March 2001 Peak December 2007 Peak 140 140 130 120 120 110 100 100 90 80 1990:Q3 Peak 2001:Q1 Peak 80 60 2007:Q4 Peak 70 60 40 −8 −6 −4 −2 peak 2 3 4 5 6 7 8 9 −12 −9 −6 −3 peak 3 5 7 9 11 14 17 20 Quarters from NBER peak Months from NBER peak Source. Census Bureau. Source. Census Bureau. Moore and Palumbo (FRB) U.S. Recessions/SCF Oct 2009 6 / 27
Macroeconomic Activity around NBER-dated Peaks Stock Prices House Prices Index: 100 = Business cycle peak Index: 100 = Business cycle peak 120 July 1990 Peak 135 July 1990 Peak March 2001 Peak March 2001 Peak December 2007 Peak 125 December 2007 Peak 110 115 105 95 100 85 75 90 65 55 45 80 −12 −9 −6 −3 1 3 5 7 9 11 14 17 20 −12 −9 −6 −3 peak 3 5 7 9 11 14 17 20 Months from NBER peak Months from NBER peak Source. Dow Jones. Source. First American CoreLogic. Moore and Palumbo (FRB) U.S. Recessions/SCF Oct 2009 7 / 27
Macroeconomic Activity around NBER-dated Peaks Personal Saving Rate Household Net Worth Difference relative to business cycle peak (percentage points of disposable income) Index: 100 = Business cycle peak 7 120 July 1990 Peak 6 March 2001 Peak 115 December 2007 Peak 5 110 4 105 3 100 2 95 1 90 0 1990:Q3 Peak 85 −1 2001:Q1 Peak 2007:Q4 Peak 80 −2 −3 75 −12 −9 −6 −3 peak 3 5 7 9 11 14 17 −8 −6 −4 −2 peak 2 3 4 5 6 7 8 9 Months from NBER peak Quarters from NBER peak Source. Bureau of Economic Analysis. Source. Federal Reserve Board, Flow of Funds. Moore and Palumbo (FRB) U.S. Recessions/SCF Oct 2009 8 / 27
Macroeconomic Activity around NBER-dated Peaks Home Mortgage Debt Consumer Credit Index: 100 = Business cycle peak Index: 100 = Business cycle peak 135 115 1990:Q3 Peak 2001:Q1 Peak 110 125 2007:Q4 Peak 105 115 100 105 95 95 90 July 1990 Peak March 2001 Peak 85 December 2007 Peak 85 75 80 −8 −6 −4 −2 peak 2 3 4 5 6 7 8 9 −12 −9 −6 −3 peak 3 5 7 9 11 14 17 Quarters from NBER peak Months from NBER peak Source. Federal Reserve Board, Flow of Funds. Source. Federal Reserve Board. Moore and Palumbo (FRB) U.S. Recessions/SCF Oct 2009 9 / 27
Macroeconomic Activity around NBER-dated Peaks Mortgage Delinquency Rate Credit Card Delinquency Rate Difference relative to business cycle peak Difference relative to business cycle peak (percentage points) (percentage points) 2.5 1990:Q3 Peak 2.0 2001:Q1 Peak 2.0 2007:Q4 Peak 1.5 1.5 1.0 0.5 1.0 0.0 0.5 −0.5 0.0 July 1990 Peak −1.0 March 2001 Peak −0.5 December 2007 Peak −1.5 −1.0 −2.0 −8 −6 −4 −2 peak 2 3 4 5 6 7 8 9 −12 −9 −6 −3 peak 3 5 7 9 11 14 17 20 Quarters from NBER peak Months from NBER peak Source. Mortgage Bankers Association. Source. Moody’s Investors Service. Moore and Palumbo (FRB) U.S. Recessions/SCF Oct 2009 10 / 27
Translating the SCF Data Surveys of Consumer Finances are near , but not aligned with, U.S. macro downturns So, we “translate” (project) household-level data from the nearest SCF using changes in stock price and home price indexes We assume no changes in other asset values or in debt during the business cycles Moore and Palumbo (FRB) U.S. Recessions/SCF Oct 2009 11 / 27
Translating the SCF Data Surveys of Consumer Finances are near , but not aligned with, U.S. macro downturns So, we “translate” (project) household-level data from the nearest SCF using changes in stock price and home price indexes We assume no changes in other asset values or in debt during the business cycles We compare shifts in the distribution of household net worth in the current and two prior U.S. recessions Moore and Palumbo (FRB) U.S. Recessions/SCF Oct 2009 11 / 27
Translating the SCF Data Our Translation of Nearest SCF Data to NBER-Dated Cyclical Peaks and Troughs SCF wave closest How we generate data corresponding to the cyclical: NBER-dated peak to NBER peak peak trough 1. July 1990 1989,1992 project to July 1990 use the 1992 SCF 2. March 2001 2001 project to March 2001 project to November 2002 3. December 2007 2007 use the 2007 SCF project to June 2009 Moore and Palumbo (FRB) U.S. Recessions/SCF Oct 2009 12 / 27
Household Net Worth in the SCF, 1989 to 2009 600 200 Thousands of 2007 dollars Thousands of 2007 dollars 480 160 360 120 240 80 120 40 9 0 2 5 8 1 1 2 4 7 9 8 9 9 9 9 0 0 0 0 0 0 − − − − l r v n u a o u J M N J Year Mean net worth Median net worth Moore and Palumbo (FRB) U.S. Recessions/SCF Oct 2009 13 / 27
Changes in Median and Mean Net Worth—Past 3 U.S. Recessions Drops in median and mean household net worth have been much larger in the current recession (1992 SCF) (2007 SCF) Jul-90 to Mar-01 to Nov-07 to Cyclical downturn: Jul-90 Nov-92 Mar-01 Nov-02 Nov-07 Jun-09 Nov-92 Nov-02 Jun-09 (thousands of 2007 dollars) (percent change) All households Median net worth 74 72 99 106 121 84 -3 7 -30 Mean net worth 285 270 463 435 558 402 -5 -6 -28 I til Moore and Palumbo (FRB) U.S. Recessions/SCF Oct 2009 14 / 27
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