August 2011 Consumer Credit Contracts Due to Student Loans

According to the Federal Reserve, August 2011 consumer credit decreased at an annual rate of 4.5% (after growing at 6% in July). Revolving credit decreased at an annual rate of 3.5%, while nonrevolving credit decreased at an annual rate of 5.25%.

Econintersect spends time on this generally ignored data series as the USA is a consumer driven economy.  One New Normal phenomenon is the consumer shift from a credit to cash society – a quantum shift which changed the amount of consumption.  Watching consumer credit provides confirmation that this New Normal shift continues.

Econintersect view of the data:  

Year-over-Year Growth Rate Change in rate of growth from Previous Month Trend
Total Credit 2.1% -0.2% one month less good
Revolving credit -2.8% 0.6% years of less bad trendline
Non-revolving credit 4.6% -0.5% one month less good

If student loans are backed out, consumer credit is growing slightly at an annual rate of 0.7%.

Econintersect backs out student loans as they are currently consuming an unusual and inordinate portion of USA consumer loans.

A good background article was written by Frederick Sheehan.

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, education, boats, trailers, or vacations.

Was there was a pause in the expansion of consumer credit in August?  It is student loans which distort the analysis as they grew ONLY 55% year-over-year this month – down from a 70% annual growth last month.  Student loans this month were over 14% of total credit – and accounted for one-half of consumer credit growth.  In some previous months, it has been literally the entire growth of consumer credit.

In short, the statistical anomaly this month was that student loans caused the negative numbers from the Federal Reserve.   Consumer credit (sans student loans) is expanding very slowly, and consistent with Econintersect’s model of the New Normal.

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All Consumer Credit Posts

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