Monday, May 10, 2010

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


  1. What is the composition of holdings of consumer credit being held by the federal government?

    I assume MBS counts but fed didn't start buying MBS until recently, what was the holdings being held prior to it?

    I never knew fed was in the consumer lending business.

  2. thinking the new student loan program, but could be wrong. let me know if you find any data...