Consumer Credit Increases For First Time Since February 2009

Econintersect has a lot of “buts” but agrees with the Federal Reserve that consumer credit expanded in March 2011.  The first “but” is the amount of increase.  The second “but” is that the growth is on the backs of our young in the form of student loans.

Consumer credit increased at an annual rate of 3 percent in March, with revolving and nonrevolving credit increasing at a similar rate. In the first quarter, consumer credit also increased at an annual rate of 3 percent.

The Fed uses seasonally adjusted numbers.  When you have a major event, say the mother of all recessions – seasonal adjustment methodology simply yields the wrong interpretation.  After a major event – it is better to use year-over-year change as the yardstick.

After 2 years of contraction, consumer credit has expanded 0.06% year-over-year.  At the current rate of change, in about one year consumer credit will be growing at historical levels.

A bigger ‘but” is that the growth is student loans.

If student loans are ignored – consumer credit is contracting 6.6% YoY.  Econintersect pointed out that Professor Paul Krugman is arguing “if we want a society of broadly shared prosperity, education isn’t the answer” (analysis here).

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.

So there it is.  For me, the “buts” have it.  Consumer credit “growth” is in the eye of the beholder.

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