Monday, November 8, 2010

Consumers Getting Responsible?

The NY Fed (hat tip Calculated Risk) details that the decline in consumer credit outstanding is due in large part to consumer retrenchment and not just outright default.

Excluding the effects of defaults and charge-offs, available data show that non-mortgage debt fell for the first time since at least 2000. Also, net mortgage debt paydowns, which began in 2008, reached nearly $140 billion by year end 2009. These unique findings suggest that consumers have been actively reducing their debts, and not just by defaulting.

“Consumer debt is declining but only part of the reduction is attributable to defaults and charge-offs,” said Donghoon Lee, senior economist in the Research and Statistics Group at the New York Fed. “Americans are borrowing less and paying off more debt than in the recent past. This change, which we continue to study carefully, can be a result of both tightening credit standards and voluntary changes in saving behavior.”

While the chart below shows the cumulative pullback in consumer credit outstanding, it is important to note that the total amount (revolving plus non-revolving) flipped positive for September (noise or a bottom?).

Source: Federal Reserve


  1. I read from comments elsewhere that the September blip could be student loan origination from ever rising tuition. Also, car sales are better than last year.

  2. I saw tyhat mentioned too Anon, should be easy to show graphicly unless it was a reclassification deal.

  3. I don't believe it was student loans. Past Septembers do not show the same pattern.

    Most categories of non-revolving debt fell, but this was more than offset by a rise of $27 billion in one small corner -- non-revolving debt held by the federal government. I would guess, actually, that this was due to some accounting anomaly. Perhaps the gov accounts for some purchases a month ahead of when the selling banks account for them?

    Anyway, given that the rise is in such a narrow category, I doubt very much it means consumer deleveraging is over.