Monday, February 14, 2011

USA Consumer Credit Increases in December (Charts) *Revolving credit increases first time since August 2008!*

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Federal Reserve Statistical Release: Consumer Credit


USA Total Consumer Credit Increases in December

Official Statement by the Federal Reserve Consumer credit increased at an annual rate of 2-1/2 percent in the fourth quarter. Revolving credit declined at an annual rate of 2-3/4 percent, and nonrevolving credit increased at an annual rate of 5-1/2 percent. In December, consumer credit increased 3 percent at an annual rate.

Total Consumer Credit (Chart) Total consumer credit increased in December by +$6.1 billion and +0.25% to $2.410 trillion. This was the 3rd consecutive monthly increase after 20 consecutive monthly decreases (from February 2009 through September 2010). Total consumer credit peaked in July 2008 at $2.582 trillion and the cyclical low was in September 2010 at $2.395 trillion. The current amount is down -$165.7 billion and -6.4% from the peak and up +$15.8 billion and +0.6% from the bottom. Therefore, the current amount is closer to the cyclical bottom than peak. The chart below shows the latest 30 months of total outstanding consumer credit, beginning with the cyclical peak in July 2008.



Total Revolving Credit (Chart) Total revolving credit increased in December by +$2.3 billion and -0.3% to $800.5 billion. This was the first increase after 27 consecutive monthly decreases (September 2008 through November 2010). Total revolving credit peaked in August 2008 at $973.6 billion and the cyclical low amount was in November 2010 at $798.2 billion. The current amount is down -$173.1 billion and -17.9% from the peak and up +2.3 billion and +0.29% from the low. Therefore, the current amount is closer to the cyclical bottom than peak. The chart below shows the latest 29 months of total outstanding revolving credit, beginning with the cyclical peak in August 2008.



Total NonRevolving Credit (Chart) Total nonrevolving credit increased in December by +$3.8 billion and +0.2% to $1.610 trillion. This was the 5th consecutive monthly increase and 6th in the last 7 months. The pre-Great Recession cyclical peak was in July 2008 at $1,609 trillion and the cyclical trough was in November 2009 at $1,583 trillion. The current amount is a post-Great Recession cyclical peak and higher than the July 2008 pre-Great Recession cyclical peak. The current amount is up +$27.1 billion and +1.7% from the November 2009 cyclical trough. Therefore, the current amount is a new cyclical peak. The chart below shows the latest 30 months of total outstanding nonrevolving credit, beginning with the cyclical peak in July 2008.




Commentary

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 December 2010, nonrevolving credit increased for the 5th consecutive month. Revolving credit increased for the first time since August 2008, after 27 consecutive monthly decreases. Nonrevolving credit data is now including student loans which makes comparisons difficult without modifying the data. However, the increase in revolving credit is a very encouraging indicator for USA 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, November, and December. Much of this increase is attributable to student loans now being included in Total NonRevolving Credit, effective September 2010. Total Revolving Credit increased for the first time since the pre-Great Recession cyclical peak in August 2008. Total NonRevolving Credit reached a post-Great Recession cyclical low in November 2009 and has exceeded 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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