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Saturday, January 8, 2011

USA Total Consumer Credit Increases for 2nd Month (Charts) *Revolving credit down 27th consecutive month*

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Federal Reserve Statistical Release: Consumer Credit


USA Total Consumer Credit Increases in November

Official Statement by the Federal Reserve Consumer credit was little changed in November. Revolving credit decreased at an annual rate of 6-1/4 percent, and nonrevolving credit increased at an annual rate of 4-1/4 percent.

Total Consumer Credit (Chart) Total consumer credit increased in November by +$1.3B and +0.06% to $2.403T. This was the 2nd consecutive monthly increase after 20 consecutive monthly decreases (from February 2009 through September 2010). Total consumer credit peaked in July 2008 at $2.582T and the cyclical bottom to-date was September 2010 at $2.395T. The current amount is down -$178.9B and -6.9% from the peak and up +$8.3B and +0.3% from the bottom, so the current amount is closer to the cyclical bottom than peak. The chart below shows the latest 29 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 November by -$4.2B and -0.5% to $796.5B. This was the 27th consecutive monthly decrease and yet another cyclical low. Total revolving credit peaked in August 2008 at $973.6B and the current amount is the cyclical bottom to-date. The current amounts is down -$177.2B and -18.2% from the peak. Total revolving credit has decreased every month since the peak. The chart below shows the latest 28 months of total outstanding revolving credit, beginning with the cyclical peak in August 2008.



Total NonRevolving Credit (Chart) Total nonrevolving credit increased in November by +$5.6B and +0.4% to $1.606T. This was the 4th consecutive monthly increase and 5th in the last 6 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 -$2.8B and -0.2% from the July 2008 cyclical peak and up +$23.7B and +1.5% from the November  2009 cyclical trough. Therefore, the current amount is closer to the cyclical peak than the bottom. The chart below shows the latest 29 months of total outstanding nonrevolving credit, beginning with the cyclical peak in July 2008.




Commentary

The Federal Reserve revised the data back to September 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 November 2010, nonrevolving credit increased for the 4th consecutive month while revolving credit decreased for the 27th 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 NonRevolving Credit, and Total  Revolving Credit, consumer debt, peaked in July and August 2008 (The Great USA Credit Bubble) and then generally downtrended.  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.

Currently, Total Consumer Credit reached a post-Great Recession cyclical low in September 2010 and has now increased in October and November. Much of this increase is attributable to student loans now being included in Total NonRevolving Credit, effective September 2010. Total Revolving Credit continues decreasing from the pre-Great Recession cyclical peak in August 2008 without one single month of increase. Total NonRevolving Credit reached a post-Great Recession cyclical low in November 2009 and is now back to near the pre-Great Recession cyclical peak in July 2008.

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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