U.S. Household Deleveraging: What Do the Aggregate and Household-Level Data Tell Us?

Deleveraging is the process by which households decide that their level of debt is inconsistent with their revised economic outlook and adjust their leverage accordingly, primarily by substituting debt repayment for consumption. Household deleveraging is a commonly cited reason for the sluggish consumption growth experienced during the current economic recovery from the Great Recession. This policy brief analyzes the impact of household debt repayment on consumer spending during and after the Great Recession by using aggregate and household-level data. Overall, the data show little evidence that deleveraging affected household consumption. Rather, movements in consumption prior to, during, and following the Great Recession are consistent with the standard relationships implied by fluctuations in household income and net worth.