Monday, August 8, 2011

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.

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