Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw
Today’s release of the 2012Q2 Quarterly Report on Household Debt and Credit indicates a continuation of the downward trend in household debt, which followed a long period of substantial increases. As of June 30, 2012, total outstanding household debt was down nearly $1.3 trillion since its peak in the third quarter of 2008. In the Liberty Street Economics blog’s inaugural post, we used the FRBNY Consumer Credit Panel to decompose this change in household indebtedness. Leading up to the crisis, households increased their cash holdings available for consumption by extracting equity from their homes, using home equity lines of credit and cash-out refinances, and by increasing their nonmortgage balances, such as credit card and auto loan balances. When the Great Recession struck, consumers reversed this behavior and began reducing rather than increasing these obligations. We demonstrated that although some of the reduction in household debt was due to charge-offs (the removal of obligations from consumers’ credit reports because of defaults), much of the debt reduction seen at the overall level was attributable to deleveraging: households actively borrowing less and paying down existing liabilities. In this post and accompanying interactive charts, we update our analysis, using the newly available 2010 and 2011 FRBNY Consumer Credit Panel data to determine whether those trends have continued.
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