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Friday, July 8, 2011

USA Consumer Credit Increases (Charts) *Revolving credit at 4-month high*

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Federal Reserve Statistical Release: Consumer Credit


Official Statement by the Federal Reserve (July 8, 2011) Consumer credit increased at an annual rate of 2-1/2 percent in May 2011. Revolving credit increased at an annual rate of 5 percent, and nonrevolving credit increased at an annual rate of 1-1/4 percent.

Total Consumer Credit (Chart) Total consumer credit increased in May 2011 (preliminary) by +$5.077 billion and +0.21% from the prior month to $2.432 trillion. This is a Post-Great Recession cyclical high and the 8th consecutive monthly increase. The Pre-Great Recession peak was $2.582 trillion in July 2008. The cyclical low was $2.395 trillion in September 2010. Below is a chart of USA total consumer credit from September 2010, when student loans were added to nonrevolving credit (see Editor's Note further below), through the latest month reported.


Total Revolving Credit (Chart) Total revolving credit increased in May 2011 (preliminary) by +$3.362 billion and +0.43% from the prior month to $793.125 billion. This is a 4-month high and the largest monthly gain since June 2008. The Pre-Great Recession peak was $973.644 billion in August 2008. Below is a chart of USA total revolving credit from the Pre-Great Recession peak in August 2008 through the latest month reported.


Total NonRevolving Credit (Chart) Total nonrevolving credit increased in May 2011 (preliminary) by +$1.715 billion and +0.10% from the prior month to $1.639 trillion. This a Post-Great Recession cyclical high and the 10th consecutive monthly increase. The Pre-Great Recession peak was $1.609 trillion in July 2008. The cyclical low was $1.583 trillion in November 2009. Below is a chart of USA total nonrevolving credit from September 2010, when student loans were added to nonrevolving credit (see Editor's Note below), through the latest month reported.


[Editor's Note] Effective with the September 2010 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.

Commentary

In May 2011, NonRevolving Credit increased for the 10th consecutive month and reached another Post-Great Recession and all-time high, as a result of the inclusion of student loansRevolving Credit increased to a 4-month high, but has decreased 31 of the past 33 months. NonRevolving Credit data is now including student loans which makes comparisons difficult without modifying the data. However, the increase in NonRevolving Credit is an encouraging indicator for USA economic growth.

USA Total Consumer CreditNonRevolving Credit, and Revolving Credit, i.e. consumer debt, peaked in July and August 2008 (The Great USA Credit Bubble) and then generally downtrended.  The decrease in Revolving Credit had generally been greater than the increases in Nonrevolving Credit resulting in a general decrease in total consumer credit for most of 2010 and that trend began reversing later in 2010.

Currently, Total Consumer Credit reached a Post-Great Recession cyclical low in September 2010 and has now increased 8 consecutive months (October 2010 through May  2011). Much of this increase is attributable to student loans now being included in NonRevolving Credit, effective September 2010. Revolving Credit set another Post-Great Recession cyclical low in April 2011. NonRevolving Credit reached a Post-Great Recession cyclical low in November 2009 and has exceeded the Pre-Great Recession 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 2011 or certainly not as much credit. In addition, consumer uncertainty regarding the future plus the 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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