Wednesday, March 7, 2012

Consumer Credit: The Good and the Bad

Marketwatch details:

Credit has risen for 5 straight months and fifteen out of the last sixteen months.

But analysts noted that all of the gain in January came from non-revolving debt, such as auto loans, personal loans and student loans.

These three categories combined for a $20.7 billion jump in January, the biggest gain since November 2001.
While all three categories (auto loans, personal loans, and student loans) combined for $20.7 billion seasonally adjusted, the bulk was in student loans. In fact, more than 100% of the total consumer credit increase was student loans ($27.9 billion increase).

But, as the chart below shows.... we are almost there in terms of consumer credit ex-student loans expansion, after more than 3 years of decline.

The unfortunate aspect of the above chart is, of course, all the student loans. While it is logical that a lot of individuals chose to pursue further education during the downturn, if there aren't jobs waiting for them at the other side (high paying jobs at that), these students become bogged down by debt and/or unable to pay it back. To BusinessWeek with some ugly numbers as to what an adjusted (for the fact that students don't have to pay back loans immediately) delinquency rate looks like:
Once researchers exclude those loans to more accurately reflect the pool of borrowers who can actually be late, the delinquency rate more than doubled. In the end, 27 percent of the remaining borrowers were late on their payments, totaling about 21 percent of the aggregate loan balance.