Tuesday, February 7, 2012

Consumer Credit Continues to Rebound

Bloomberg details:

Consumer borrowing in the U.S. rose more than forecast in December, driven by demand for auto and student loans.
Credit increased by $19.3 billion to $2.5 trillion, Federal Reserve figures showed today in Washington. The gain topped the $7 billion median forecast of economists surveyed by Bloomberg News and followed a $20.4 billion advance the prior month.
Consumers “are willing to take on this debt because there is some increasing degree of confidence in the economy,” said Ken Mayland, president of ClearView Economics LLC in Pepper Pike, Ohio, who projected credit would climb by $15 billion, the highest in the Bloomberg survey. “Consumers over the past several years have done a pretty good job of repairing their balance sheets.”
I've been waiting for a private sector balance sheet to step in for the government's balance sheet for a while now and although I wish it were corporations rather than individuals, this isn't so bad. The reason being that about 40% of the two month jump in consumer credit ($16 billion of the $40 billion) has been consumer credit in the form of student loans, which to me is an investment rather than a loan simply buying more crap.

Over the past twelve months, consumer credit excluding student loans is still negative in nominal terms (down quite a bit relative to personal income), which means the consumer (excluding students) have still been in balance sheet repair mode. But, this is likely to flip positive in year-over-year terms next release, which would be good for the short-term recovery. Longer term we need corporations to step to the plate and hire, which would allow consumer credit to shrink as a percent of personal income, even if it grows in nominal terms.