Consumer Credit Expands In December 2010

Consumer Credit expanded in December 2010 – the question is whether whether the expansion was below normal.  A better question is what is normal.  According to the Federal Reserve:

Consumer credit increased at an annual rate of 2-1/2 percent in the fourth quarter. Revolving credit declined at an annual rate of 2-3/4 percent, and nonrevolving credit increased at an annual rate of 5-1/2 percent. In December, consumer credit increased 3 percent at an annual rate.

The Federal Reserve’s headline uses seasonally adjusted data.  The majority of revolving credit is from credit cards, while nonrevolving credit includes automobile loans and all other loans not included in revolving credit, such as loans for mobile homes, education, boats, trailers, or vacations.

A glance at the above chart confirms that historically there is an increase in credit in December.  The Federal Reserve claims the expansion is 3% using their seasonal adjusting methodology.

The situation is prior to the Great Recession, there was approximately 2.75% expansion in revolving credit, and an 0.18% expansion in non-revolving credit.  2010’s expansion is below this level – but significantly higher than the last two years.

The primary question is what is normal to use as a baseline to decide whether there was an increase.  The credit expansion in December 2010 was  almost pre-recession normal, but whether this results in new trend lines will be determined in the coming months.

The other notable take from the data was where the growth was originating – in finance companies and nonfinancial business (not in the banks).

This tells Econintersect that Joe Sixpack drove this credit expansion using higher cost credit options.

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