State of the Household

Translating Big Economic Trends Into Something a Real Family Might Face

The chatter about the economy tends to focus on the big picture. How much did gross domestic product rise? How many jobs were created? What's the price of oil?

But most people have never bought a barrel of oil, need only one job to be happy and couldn't tell GDP from NBC. So how do the macroeconomic data behind all that chatter actually affect your family?

To find out, we dissected the average financial situation of American households. We took government data on how much money all Americans are making, how much they spend, what they own and what they owe -- and divided it by the number of households.

You can think of the result as the average financial statement of an average American household. When a company releases its earnings, it produces an income statement: how much it made and spent, how much was left over. And a balance sheet -- information about the assets and liabilities the company had on hand.

We've broken down the American family's finances the same way, and it's useful to understand how the two sets of data interrelate. Think of savings -- what a family makes minus what it spends -- as the equivalent of a company's profit. Savings (or profit) ends up somewhere on the family's (or company's) balance sheet, increasing net worth.

We've annotated the numbers to show how the uncertain economy could affect your household's financial statement and vice versa. Economists worry that the housing downturn and credit crisis will cause a recession. This financial statement shows how that might happen, but also how it might be avoided: If the job market stays strong and incomes keep rising, consumers could keep spending money. Or they might reduce their savings rate or borrow more to keep buying.

The chart shows how the decisions every family makes will determine whether the U.S. economy falls into recession in the coming months -- or glides through another threat, barely scathed.