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Friday, August 5, 2011

USA Consumer Credit Rises Strongly to Post-Recession High! (Charts) *Revolving credit at 6-month high*

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Federal Reserve Statistical Release: Consumer Credit


Official Statement by the Federal Reserve (August 5, 2011) Consumer credit increased at an annual rate of 4-1/4 percent in the second quarter. In June, consumer credit increased at an annual rate of 7-3/4 percent, with revolving credit increasing at a rate of 8 percent and nonrevolving credit increasing at a rate of 7-1/2 percent.

Total Consumer Credit (Chart) Total consumer credit increased in June 2011 (preliminary) by very strong +$15.54 billion and +0.64% from the prior month to $2.446 trillion. This is a Post-Great Recession cyclical high and the 9th consecutive monthly increase. This is the largest monthly increase since August 2007 (+$17.29 billion). The Pre-Great Recession peak was $2.582 trillion in July 2008. The Great Recession cyclical low was $2.395 trillion in September 2010. Student loans were added to nonrevolving credit in September 2010 (see Editor's Note further below.


Total Revolving Credit (Chart) Total revolving credit increased in June 2011 (preliminary) by a very strong +$5.21 billion and +0.66% from the prior month to $798.29 billion. This is a 6-month high and the largest monthly gain since March 2008 (+$5.52 billion). The Pre-Great Recession peak was $973.644 billion in August 2008. The cyclical low was $789.76 billion in April 2011.


Total NonRevolving Credit (Chart) Total nonrevolving credit increased in June 2011 (preliminary) by a very strong +$10.33 billion and +0.63% from the prior month to $1.648 trillion. This a Post-Great Recession cyclical high, an all-time high, and the 11th 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. Student loans were added to nonrevolving credit in September 2010 (see Editor's Note below).


[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 June 2011, NonRevolving Credit increased impressively for the 11th consecutive month and reached another Post-Great Recession and all-time high. Revolving Credit increased impressively to a 6-month high, but has decreased 31 of the past 34 months. However, there have now been 2 consecutive monthly increases  for the first time since July and August 2008. 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.

Total Consumer Credit reached a Post-Great Recession cyclical low in September 2010 and has now increased 9 consecutive months (October 2010 through June 2011). Some of this increase is attributable to student loans now being included in NonRevolving Credit, effective September 2010. Revolving Credit set a Post-Great Recession cyclical low in April 2011, but now has increased for 2 consecutive months. 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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