econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 07 February 2015

December 2014 Consumer Credit Rate of Growth Declines, But Is Still Growing Much Faster than GDP

Written by Steven Hansen

Consumer credit growth has been trending down since July - and growth decelerated again this month. Student loan growth has not been distorting one's view of the consumer credit growth as the rate of growth continues to decelerate. Overall, consumer credit annual growth is still growing at roughly double GDP growth and repayment of consumer debt is taking a larger share of disposable income. The current trends are not sustainable unless there is a similar increase of growth in disposable income.

The headline said:

Consumer credit increased at a seasonally adjusted annual rate of 5-1/2 percent during the fourth quarter. Revolving credit increased at an annual rate of 3 percent, while nonrevolving credit increased at an annual rate of 6-1/4 percent. In December, consumer credit increased at an annual rate of 5-1/2 percent.

Econintersect's view:

Unadjusted Consumer Credit Outstanding

Month- over- Month Growth Year- over- Year Growth Month- over- Month Growth without Student Loans Year- over- Year Growth without Student Loans
Total -0.1 % +6.9% -0.1 % +4.3%
Revolving +0.1 % +3.5% n/a n/a
Non- Revolving -0.1 % +8.2% -0.2 % +4.7%

Overall takeaways from this month's data:

  • Student loan growth has been decelerating gradually since the beginning of 2013;
  • Student loans again had little effect on the rate of non-revolving credit growth this month as the data decelerated almost the same amount whether student loans were considered or not ;
  • Revolving credit (credit cards and this series includes no student loans) has been slightly accelerating generally for most of 2014;
  • The backward revision was very slight this month.

The market expected consumer credit to expand $12.8 to $22.0 billion (consensus = $15.2 billion) versus the seasonally adjusted headline expansion of $14.8 billion reported.

Note that this consumer credit data series does not include mortgages.

The Econintersect analysis is different than the Fed's:

  • an effort is made to segregate student loans from consumer credit to see the underlying dynamics;
  • this analysis expresses growth as year-over-year change, not one month's change being projected as an annual change - which creates significant volatility and distortion.
  • where our analysis expresses the change as month-over-month, month-over-month change is determined by subtracting the previous month's year-over-year improvement from the current month's year-over-year improvement.

The commonality between the Fed and Econintersect analysis is that consumer credit is expanding whether one considers student loans or not. Econintersect does not believe the seasonal adjustment methods used in the headlines are accurately conveying the situation for a variety of reasons.

This month student loans accounted for 15% of the growth of total consumer credit. Since the Great Recession, much of the increase in consumer credit had been from student loans. The following graph shows the flow into consumer credit including student loans (blue line) against the flow into student loans alone (red line).

Flow of Funds into Consumer Credit - Total Consumer Credit (blue line) vs Student Loans (red line)

Another way to view the effects of student loans on consumer credit is to view the year-over-year growth in $ billions of student loans as a percent of total consumer credit (including student loans). In short, student loans accounted for all consumer credit growth from 2009 to late 2011. Currently, the growth of consumer credit (blue line in graph below) is showing growth.

Year-over-Year Growth in $ Billions - Total Consumer Credit (blue line) vs Student Loans (red line)

Consider that student loans make up a large portion of assets of the Federal Government [from Econintersect contributor Doug Short]

And one final look at total consumer credit and the effect of student loans. The graph below removes student loans from total consumer credit outstanding.

Total Consumer Credit Outstanding - Total Consumer Credit (blue line) vs Total Consumer Credit without Student Loans (red line)

Econintersect spends time on this generally ignored data series because the USA is a consumer driven economy. One New Normal phenomenon has been the consumer shift from a credit towards an electronic payment (current account debit) society - a quantum shift which changes the amount of consumption. Watching consumer credit provides confirmation that this New Normal shift continues.

Year-over-Year Growth of Consumer Credit - Total (blue line), Revolving Credit (red line), and Non-Revolving (green line which includes student loans)

The Federal Reserve reports credit divided between revolving and non-revolving. The majority of revolving credit is from credit cards, while non-revolving credit includes automobile loans, student loans, and all other loans not included in revolving credit, such as loans for mobile homes, boats, trailers, or vacations.

Comparison Revolving Credit Total (blue line) to Non-Revolving Credit Total (red line)

A Look at Consumer Ability to Repay Credit

The percent of consumer disposable income used to repay consumer loans (not including mortgages).

Other Consumer Credit Data from Outside this Report:

The question remains on the rate of write-downs of consumer loans. The following graph addresses this question:

Net Charge-Offs on Consumer Credit

The next graph addresses the question of loan losses by the banks which have returned to historical norms:

Bank Net Loan Losses - Percent of Total Loans

This consumer credit release does not include mortgages. Here is what total household debt looks like. Please note that the mortgage data is not as current as the consumer credit data in this post.

Total Household Debt (includes mortgages blue line), mortgages (red line), and Consumer Credit talked about in this post (green line)

And just to make sure the data in the consumer credit report migrates to other reports, here is a graph from Z.1 Flow of Funds.

Total Consumer Credit Outstanding from Flow of Funds Z.1

Caveats on the Use of Consumer Credit

This data series does not include mortgages, and is not inflation adjusted. This whole series has undergone a major revision with the April 2012 Press Release:

The Federal Reserve Board on Monday announced that it has restructured the G.19 statistical release, Consumer Credit, to reflect regulatory filing changes for U.S.-chartered depository institutions and, in addition to the data currently reported on level of credit outstanding, the release will now report data on the flow of credit. The revised data will be made available with the release of the April report on Thursday, June 7.

Savings institutions now file the same regulatory report as U.S.-chartered commercial banks. The U.S.-chartered commercial banks sector and the savings institution sector, which were previously shown separately, have been combined into a new sector called depository institutions. The previously published series for U.S.-chartered commercial banks and savings institutions will continue to be available as separate series in the Federal Reserve's Data Download Program (DDP).

The new flow data represent changes in the level of credit due to economic and financial activity, rather than breaks in the data series due to changes in methodology, source data, and other technical aspects of the estimation that affect the level of credit. Access to flow data allows users to calculate a growth rate for consumer credit that excludes such breaks.

These changes will be accompanied by revisions to the estimates of outstanding consumer credit back to January 2006 and reflect improvements in methodology and a comprehensive review of the source data.

The graph below shows consumer credit outstanding (this data series does not include mortgages) is now above a high of over 26% in the 2000s, and well above the averages before the mid 1990s.

Ratio of Total Consumer Loans Outstanding to Consumer Spending

To get a feel of inflation adjusted consumer credit, the following graph is inflation adjusted consumer credit using the CPI-U (less shelter) - this is expressing consumer credit in 1982 dollars. It is evident on an inflation adjusted basis, consumer credit is beginning to grow.

Inflation Adjusted Consumer Credit

Also, an interesting graphic showing the consumer's ratio of liquid assets to total liabilities - it is showing a rapidly expanding credit growth.

Ratio of Consumer Liquid Assets to Total Consumer Liabilities

Consumer credit is now fully recovered and may again be in the warning zone.

Related Posts:

Old Analysis Blog

New Analysis Blog

All Consumer Credit Posts All Consumer Credit Posts


>>>>> Scroll down to view and make comments <<<<<<



Permanent link to most recent post on this topic

Click here for Historical Releases Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.



You can also comment using Facebook directly using he comment block below.







Econintersect Economic Releases


search_box

Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.


Take a look at what is going on inside of Econintersect.com
Main Home
Analysis Blog
The Problem With Obamacare Is That It Did Little To Reduce Overall Healthcare Spending
Joan Robinson’s Critique of Marginal Utility Theory
News Blog
December 2016 Livingston Survey: Forecasters Strengthen Their Predictions for Output Growth and Predict Declining Unemployment for 2017
Life Experience And Loan Delinquencies - Part 2
Homeowner Mobility Down By A Third Over Last Three Decades And State-to-State Migration At 15-Year Lows
India's Stock Market: Nothing "Random" About It
Infographic Of The Day: What You Need To Know About The Deep Web
Early Headlines: New Oil Pact, Facebook Should Crush Fake News, Trump Vs CIA, Dow 20,000?, Twin Bombings In Turkey, India Currrency SNAFU, New Charges In So. Korea, US-China Trade War? And More
Free Autographed Copies Of Frank Li's New Book Available - If You Act Fast
Most Women Inventors Come From America
Earnings And Economic Reports: Week Starting 12 December 2016
The U.S. Is Home To The Most Unicorns
Why Britain's Public Finances Will Suffer If Brexit Reduces Migration
Working From Home Is Still Rare In The United States
What We Read Today 10 December 2016
Investing Blog
The Week Ahead: Dow 20,000 Just Ahead?
Natural Gas Prices Are Headed Higher In 2017
Opinion Blog
Is Commercial Real Estate Facing A Day Of Reckoning?
The US Has A Regime-Uncertainty Problem
Precious Metals Blog
Silver Prices Rebounded Today: Where They Are Headed
Live Markets
09Dec2016 Market Close: Wall Street Closes On A New High, Trump Sugar High, Crude Prices Testing Resistance, US Dollar Melts Higher
Amazon Books & More






.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government



Crowdfunding ....






























 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2016 Econintersect LLC - all rights reserved