Wednesday, December 8, 2010

USA Total Consumer Credit Increases in October (Charts) *Revolving credit down 26th consecutive month*

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Federal Reserve Statistical Release: Consumer Credit


USA Total Consumer Credit Increases in October

Official Statement by the Federal Reserve Consumer credit increased at an annual rate of 1-3/4 percent in October 2010. Revolving credit decreased at an annual rate of 8-1/2 percent, and nonrevolving credit increased at an annual rate of 6-3/4 percent.

Total Consumer Credit (Chart) Total consumer credit increased in October by +$3,38B or +0.14% from September to $2.399T. This was the 2nd consecutive monthly increase after 19 consecutive monthly decreases. Total consumer credit peaked in July 2008 at $2.582T and the cyclical bottom to-date was August 2010 at $2.395T. The current amount is down -$182.6B and -7.1% from the peak and up +$4.6B and +0.2% from the bottom, so the current amount is closer to the cyclical bottom than peak. The chart below shows the latest 28 months (2+ years) of total outstanding consumer credit, beginning with the cyclical peak in July 2008.



Total Revolving Credit (Chart) Total revolving credit decreased in October by -$5.64B or -0.7% from September to $800.45B. This was the 26th consecutive monthly decrease and yet another cyclical bottom. Total revolving credit peaked in August 2008 at $973.64B and the current amount is the cyclical bottom to-date. The current amounts is down -$173.2B and -17.8% from the peak. Total revolving credit has decreased every month since the peak. The chart below shows the latest 27 months of total outstanding revolving credit, beginning with the cyclical peak in August 2008.


Total NonRevolving Credit (Chart) Total nonrevolving credit increased in October by +$9.02B or +0.6% from September to $1,599T. This was the 3rd consecutive monthly increase and 4th in the last 5 months. The cyclical peak was in July 2008 at $1,609T and the cyclical trough was in November 2009 at $1,583T. The current amount is down -$10.49B and -0.7% from the July 2008 cyclical peak and up +$15.94B and +1.0% from the November  2009 cyclical trough. Therefore, the current amount is now closer to the cyclical peak than the bottom. The chart below shows the latest 28 months of total outstanding nonrevolving credit, beginning with the cyclical peak in July 2008.




Commentary

The Federal Reserve revised the data back to January 2010 effective with this release. In addition, effective with the September data, the law changed and the US federal government is the primary lender to students. Previously, the US federal government had been the guarantor of student loans and private lenders provided the credit. Some of the increase in nonrevolving credit can be attributed to increased student loans by the government.

In October 2010, nonrevolving credit increased for the 3rd consecutive month while revolving credit decreased for the 26th consecutive month. Nonrevolving credit increased more than the decrease in revolving credit which resulted in an overall increase in total consumer credit. This is a positive for economic growth.

As can be seen from the charts above and was so noted, USA Total Consumer Credit, Total Revolving Credit, and Total  NonRevolving Credit, consumer debt, peaked in July and August 2008 (The Great USA Credit Bubble) and has generally downtrended (total consumer credit and total revolving credit) or been flat (nonrevolving credit) since. The decrease in revolving credit has generally been greater than the increases in nonrevolving credit resulting in a general decrease in total consumer credit for most of 2010.

While reports say consumers are deleveraging, i.e. paying off their debt, it should also be noted that banks have tightened lending standards. Therefore, some consumers who could  have borrowed (and spent) as recently as the first half of 2008 cannot obtain credit in 2010 or certainly not as much credit. In addition, consumer uncertainty regarding the future plus the current high unemployment and underemployment rates have lowered loan demand. Since consumer spending, consumption, is a significant portion  of the USA economy (60%+ of GDP), all of these factors slow down the USA economic (GDP) growth.


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