Consumer Credit Jumps... a Good Thing?

Bloomberg details:

Consumer credit climbed more than forecast in May, led by the biggest jump in credit-card debt in almost five years that may signal Americans are struggling to make ends meet.

The $17.1 billion increase, exceeding the highest estimate of economists surveyed by Bloomberg News and the largest this year, followed a $9.95 billion gain the previous month that was more than previously estimated, the Federal Reserve said today in Washington. Revolving credit, which includes credit card spending, rose by $8 billion, the most since November 2007.

In a "normal" mean-reverting downturn, an increase in consumer borrowing is a good sign as it allows a consumer to maintain their purchase level (even without the current income to pay for it), with the expectation that they can cover their borrowing when their wages "revert" higher in the future.

A quote from someone who believes we are still living in the old world (we may be, I'm just not so certain):

“When the economy’s not doing well, that’s when you want the consumer to spend, and if it means borrowing to do that, then that certainly would be encouraged,” said Millan Mulraine, a senior U.S. strategist at TD Securities in New York, who projected credit would rise by $15 billion.

The concern is that we are now in year 4 year of the muddle through recovery, thus some concern that people are spending money on goods via debt that they may have trouble repaying. Back to Bloomberg:

A pickup in borrowing coincides with a slowdown in hiring and declines in consumer confidence that indicate the job market is failing to spur enough gains in wages to cover expenses. Employers added fewer workers to payrolls than forecast in June while the jobless rate stayed at 8.2 percent.

Regardless, overall nominal debt (even excluding student loans) is once again rising. A bullish sign for the short run. Mixed (in my opinion) for the longer run.

Source: Federal Reserve

The Consumer is Back... Consumer Credit Positive (Even Excluding Student Loans)

SF Gate details:

Consumer borrowing in the U.S. surged in March by the most in more than a decade on growing demand for educational financing and autos.

Credit rose by $21.4 billion, the biggest gain since November 2001, to $2.54 trillion, Federal Reserve figures showed today in Washington. The advance was paced by a $16.2 billion jump in non-revolving debt, including student and car loans.

Americans may have been trying to get school financing before a possible increase in interest rates takes place on July 1. Rising consumer confidence also means that households are more willing to take on debt to boost spending, which accounts for about 70 percent of the economy.

I've been showing the below chart for some time. It shows the year-over-year change in revolving consumer credit, non-revolving consumer (excluding student loans), and student loans. Headline consumer credit has been growing since early last year, but this had been solely due to student loans (not necessarily a bad investment, but it doesn't reflect consumers re-leveraging for goods and services).

Well, as the chart shows, after a strong March where revolving consumer credit (i.e. credit cards) jumped 7.8% month over month and non-revolving (excluding student loans) posted a positive print... the day has arrived in which the consumer is no longer deleveraging in nominal terms (important for all that nominal debt out there).

We'll see if this continues, but the consumer looks like they may be back.

Source: Federal Reserve

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.

Source: Federal Reserve

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.

Source: Federal Reserve

Consumer Credit Set to Be a Positive Contributor to Growth

The WSJ details:

The level of consumer credit outstanding increased by $20.37 billion to $2.478 trillion, the Federal Reserve said Monday. Economists surveyed by Dow Jones Newswires had forecast an $8.0 billion increase.

In percentage terms, the increase was the biggest since October 2001 and a big driver of the gain was revolving credit, which includes credit-card debt. It increased by $5.60 billion to $798.27 billion.

Nonrevolving credit also surged, rising $14.78 billion to $1.679 trillion. The increase was fueled by federal government, a category that includes student loans and has been increasing a lot over the past year–a sign high joblessness in the U.S. has led many people to go back to school.

The below chart shows where consumer credit stands in nominal terms (click here for a chart outlining consumer credit relative to personal income). We can see that more than 100% of the growth over the past 12 months has come in the form of student loans (i.e. consumer credit growth excluding student loans is negative year over year), as the consumer continued to delever. Note that the rate of this decline has decreased and appears ready to flip positive on a 12-month basis, indicating that consumers will once again be levering up in nominal terms, a positive sign for short-term growth.

Source: Federal Reserve

Consumer Credit (Excluding Student Loans) Now Below 50 Year Average

Bloomberg outlines:

U.S. consumer borrowing rose in October to the highest level in two years, propelled by gains in non-revolving debt like auto and student loans.

Credit increased by $7.65 billion to $2.46 trillion, the most since October 2009, Federal Reserve figures showed today in Washington. The advance was in line with the median forecast of economists surveyed by Bloomberg News that projected a $7 billion gain.

While overall consumer credit rose, consumer credit excluding student loans continued to decline as a percent of personal income from 15.74% in September to 15.71% in October. Of note, total consumer credit (revolving and non-revolving) is now below the 50 year average when viewed relative to personal income, with the big caveat that this excludes student loans*, a category that is now more than 3% of personal income (up from less than 0.5% on average the past 50 years).

Source: Federal Reserve / BEA

* this assumes all Federal student loans are student loans.

Deleveraging is Not a Myth

The New Yorker's The Develeraging Myth states (at a high level) that consumers are not deleveraging because they are still spending:

Americans certainly have lots of debt, but the evidence that it’s killing the recovery is surprisingly sketchy. For a start, American consumers are not actually keeping their wallets closed. Real consumer spending, after collapsing in 2009, has risen for nine straight quarters; this past quarter it was up at an annualized rate of 2.4 per cent. That looks anemic by the standard of past recoveries, but, with an unemployment rate near ten per cent and wages barely rising, that’s to be expected.

EconomPic has explained how spending has remained strong in the face of lower income and higher savings here. More curious is why an article on consumer credit focuses on spending, rather than consumer credit.

Looking at the actual consumer credit data, we see that consumers (with the exception of student loans) have reduced consumer credit dramatically. Both revolving (mainly credit card loans) and non-revolving (excluding student loans) credit levels are back to 2004 levels. As a percent of GDP, the reduction has been even greater.

Note that in the chart above, federal non-revolving loans are assumed to be 100% student loans. Likely close, but I can't find specific details.

Source: Federal Reserve

Students Heart Debt... Everyone Else Deleveraging

Bloomberg details:

Consumer borrowing in the U.S. rose by the most in more than three years in July, led by a gain in non-revolving credit that includes student loans.

Credit increased $12 billion after a revised $11.3 billion rise in June, the Federal Reserve said today in Washington. Economists projected a $6 billion gain, according to the median forecast in a Bloomberg News survey. The rise in non-revolving loans was the most since November 2001.

Revolving credit showed the biggest decrease in six months, indicating Americans may be cutting back on non-essential items as limited job and wage growth depresses consumer confidence. Employment and income gains may be required to help spark the household spending and the recovery.

Note that the chart above assumes all non-revolving consumer loans held by the federal government are student loans (and they mainly are).

Source: Federal Reserve

Consumer Credit Jumps in June

While this will certainly not be the top data point investors are digesting, the AP detailed on Friday that consumers are once again leveraging up:

Americans borrowed more money in June than during any other month in nearly four years, relying on credit cards and loans to help get through a difficult economic stretch.

The Federal Reserve said Friday that consumers increased their borrowing by $15.5 billion in June. That's the largest one-month gain since August 2007. And it is three times the amount that consumers borrowed in May.

The category that measures credit card use increased by $5.2 billion -- the most for a single month since March 2008 and only the third gain since the financial crisis. A category that includes auto loans rose by $10.3 billion, the most since February.

Total consumer borrowing rose to a seasonally adjusted annual level of $2.45 trillion. That was 2.1 percent higher than the nearly four-year low of $2.39 trillion hit in September.

Borrowing is usually a sign of confidence in the economy. Consumers tend to take on more debt when they feel wealthier. But an increase in credit card debt could also signal that people are falling on harder times.

The chart below shows how far consumer credit, broken out by revolving (credit cards) and non-revolving (more traditional loans), fell below its previous peak going back 60 years. Even with this recent re-leveraging, revolving credit is 18% below the previous peak, while overall consumer credit is around 5% below previous peaks. Importantly for short-term growth, leverage is (or at least was pre-downgrade crisis) no longer falling.

It will be interesting to see how this figure looks for July and August when the turmoil re-emerged.

Source: Federal Reserve

Has Re-Leveraging Begun?

Non-revolving credit is now at new all-time highs and the revolving cliff dive has hit a bottom (i.e. it is turning up... for now).

Source: Federal Reserve

More on Consumer Credit

Karl Denninger details why the jump in non-revolving consumer credit was not necessarily all it was made out to be (hat tip Jim Driscoll):

Except for the idiots borrowing to go to school [who] are going to find that they will never be able to pay it back, having bought into the Kool-Aid (and who will be destroyed by it), the actual non-revolving debt acceptance was down at a 58% annualized rate of change!

That's not a decline -- it's a collapse.

Well then.

Here's the supporting data (assuming Federal owned consumer credit is all student loans).



For those that like ranting... enjoy as I turn it back to Karl:

While the "pumpers" all said that strong auto sales were part of the recovery, that's a lie; "finance companies" (which include GMAC, Ford Motor Credit (FCZ), etc.) declined at a nearly 6% rate for the month, which on an annualized basis is just plain nasty.

"Positive surprise"? Oh hell no. Not only are consumers shunning credit cards, they're shunning credit of all types -- except for young people, who continue to be bamboozled into taking on debt for a so-called "education" into a collapsing credit, salary and employment environment.

Source: Federal Reserve

The Consumer Credit Split

Bloomberg details:

Consumer borrowing in the U.S. unexpectedly rose in October for a second straight month, led by an increase in non-revolving credit, including student loans held by the federal government.

The report showed credit-card debt fell for a 26th consecutive time, showing Americans continue to pay down debt, one reason spending has been slow to recover. Car sales last month climbed to the highest level in a year and holiday purchases have perked up, indicating households may soon start borrowing again.

It looks like non-revolving loans have (for at least the moment) hit bottom, while revolving (i.e. credit card debt) continues to collapse.



Source: Federal Reserve

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

Consumer Credit Breakdown

Reuters details:

Total consumer credit outstanding declined for the seventh straight month in August as credit card debt continued to fall.

The Federal Reserve said on Thursday total outstanding credit, which covers everything from car loans to credit cards, fell by $3.34 billion after dropping $4.09 billion in July.

Looking a bit longer term, we see how the composition of those debt "holders" has changed.



Commercial banks had to take loans that were hidden off-balance sheet... back (though the combined level of securitized + commercial loans continues to default contract) and the government continues to take on more credit risk (up more than $150 billion over the past three years) in an attempt to stimulate the economy / pump $$ back into banks.

Source: Federal Reserve

Consumer Credit Continues Decline, Though Past Months Revised Up

Marketwatch details:

U.S. consumers shed some of their debt in June for the fifth month in a row, the Federal Reserve reported Friday. Total seasonally adjusted consumer debt fell $1.34 billion, or a 0.7% annualized rate, in June to $2.418 trillion. Economists expected a decline. The series is very volatile. May consumer credit was revised sharply higher to a decline of $5.28 billion compared with the initial estimate of a drop of $9.15 billion. The decline in June was led by revolving credit-card debt, which fell $4.48 billion or 6.7%.

Source: Federal Reserve

Consumer Credit Freefall

BusinessWeek details:

Consumer borrowing in the U.S. dropped in May more than forecast, a sign Americans are less willing to take on debt without an improvement in the labor market.

Borrowing that’s increased twice since the end of 2008 shows consumer spending, which accounts for about 70 percent of the economy, will be restrained as Americans pay down debt. Banks also continue to restrict lending following the collapse of the housing market, Fed officials said after their policy meeting last month.

“The trend in consumer deleveraging is clear as credit has declined 11 of the last 13 months,” Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York, said in a note to clients. “Credit card debt continues to be paid down at a heady pace.”

The key in the chart below is the blue line (total). Notice that besides a blip in the early 90's overall levels of consumer debt went one direction for 60+ years and we have never seen both revolving (i.e. credit cards) and non-revolving debt decrease (let alone crash) simultaneously.

Source: Federal Reserve

Consumer Credit Split

I wonder if this is the consumer taking advantage of low rates and locking them in for a longer period, but a definite divergence between revolving and non-revolving consumer credit.

Business Week details:

Consumer borrowing in the U.S. rose in April for the first time in three months, indicating a recovery in bank lending will take time to develop.

Revolving debt, which includes credit cards, dropped by $8.5 billion in April. The decline was the 19th straight and signals consumers are taking steps to reduce debt. A decline in late payments indicates they may be having some success.

Non-revolving debt, including loans for cars and mobile homes, increased by $9.4 billion in April, today’s report showed.

Source: Federal Reserve

Consumer Credit Steady... Details Mixed

The latest consumer credit released occurred late Friday. Business Week details:

Consumer borrowing in the U.S. unexpectedly rose in March for the second time in three months, indicating Americans are becoming more optimistic about the recovery.

Confidence to finance spending may grow as more people are hired after the creation of 290,000 jobs in April, the most in four years. Consumer purchases, which account for about 70 percent of the economy, rose at the fastest pace in three years during the first quarter, pointing to a broadening of the economy.

“Consumption has recovered in recent months, and should continue the recovery in light of an improving jobs market,” said Win Thin, senior currency strategist at Brown Brothers Harriman & Co. in New York.

Even though consumer credit outstanding expanded, that level decreased as a percent of overall consumption as consumers utilized transfer payments, wealth created from financial asset reflation, and perhaps cash that "should have" gone to their mortgage (i.e. strategic defaults).



There was something funny looking in the Federal Reserve's release, specifically a crash in the amount of consumer credit in the securitized market and spike in the amount held by commercial banks.



The Atlantic provides the "why"details:

Financial institutions adopted accounting standard FAS 166/167 this month, which required them to take some securitization debt on balance sheet. As a result, pools of securitized assets plummeted by nearly 70% for the month, but that caused large increases for credit held by commercial banks and finance companies.

In other words, this is just the shadow banking system making its way back to the banks' balance sheets (likely delayed to ensure banks could first build up the required capital).

The Atlantic does detail an area that is perhaps more concerning:

But the Federal government continued to hold more credit, increasing its holdings at an annualized rate of 31% for the month.

Source: Federal Reserve

Consumer Credit Contracts from January Bounce

Been on the road away from it all this morning / early afternoon. It looks like I missed an interesting day of news. CNN Money details one of those pieces of information:

Consumer borrowing dropped in February, after increasing for the first time in a year during the previous month, according to a government report released Wednesday.

Total consumer credit fell a seasonally adjusted $11.5 billion, at an annual rate of 5.6%, to $2.448 trillion in February, the Federal Reserve reported.

Economists predicted a decline in total borrowing of $0.7 billion in February, according to a consensus estimate from Briefing.com.

"February's decline reflects on the still dire state of the economy," said Yasmine Kamaruddin, an economic analyst at Wells Fargo.

"Even if we have seen retail sales and personal expenditure increase in past months, we haven't seen these gains translate into the use of credit because consumers faced with unemployment and slow wage and salary growth are still shying away from taking on credit," she added.

Can't agree completely with Ms. Kamaruddin, as we detailed at EconomPic the paying down of debt outstanding is actually declining in the consumer sector (it's just that defaults are outpacing paydowns that has caused the level to shrink).



Source: Federal Reserve / BEA

Was Consumer Delevering Part II

On Monday I asked if the consumer was relevering and showed the below chart (makes special note of the revolving debt).

Felix Salmon with some interesting analysis that shows perhaps they never really were:

It turns out that while total debt outstanding dropped by $93 billion, charge-offs added up to $83 billion — which means that only 10% of the decrease in credit card debt — less than $10 billion — was due to people actually paying down their balances.

Source: Cardhub