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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2 replies on “August 2011 Consumer Credit Contracts Due to Student Loans”

  1. First, Steven, this is the only serious discussion of the effects of student loans on this months numbers we have seen, and we have looked. Well done.

    Second, there is another data set you might want to incorporate into these charts, namely the use of debit cards as opposed to credit cards.

    True, this is skewered (sp?) by the swipe fee problems, but the huge increase in the use of debit cards and/or cash to pay for consumer goods and services is directly connected to the measurement of the deleveraging by some or most of U.S.

    However, IF an increase in the use of “credit cards” is matched by a decrease in “debit card” use, then they may not really BE an increase in “credit”, but only a change in the way we are paying for “stuff”, from China, at Walmart, this month.

    Like you, we have watched the decline in credit card balances, to attempt to see if that was caused by a decline in use, OR was caused by card cancellations and write offs. What we, too, watched was the huge shift to using debit cards.

    What many of U.S. figured out was that using debit or cash eliminated all “late” and “overdraft” fees. Given the fact that the Big Bad Banksters make more money off those fees than they do off the interest that they charge, possibly WE are the real cause of all their financial problems:)

    We “swiped” their fees; and now the evil empire is “swiping” back.

  2. yes, debit card data would be real interesting to analyze in real time. as you know, debit cards are not credit but are essentially electronic checks – and therefore do not show up in the fed’s credit database.

    i did a quick search, and find no real time data on debit card use – and without real time data, analysis is impossible. i find debit card charges particularly evil when the bank already profits from the merchant transaction fee. this is additional consumer rape directed at the poorer half of the population who dominate debit card use.

    further, the transaction systems (plus, cirrus, interlink, etc) are monopolies as merchants or consumers are left with no choice to their fees.

    at this point with the feds and government’s clear bias towards big banks – nothing short of replacing all elected officials will bring change.

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