September 2011 Consumer Credit Growth Is Due to Student Loans

According to the Federal Reserve, September 2011 consumer credit increased at an annual rate of 3.5%.  Revolving credit decreased at an annual rate of 1.0%, while nonrevolving credit increased at an annual rate of 5.8%.

A summary for third quarter 2011: Consumer credit increased at an annual rate of 1.5% – with revolving credit decreased at an annual rate of 3.25% while nonrevolving credit increased 3.75%.

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 based on the September 2011 data:

Year-over-Year Growth Rate Change in rate of growth from Previous Month Trend
Total Credit 2.45% 0.4% one month improving
Revolving credit -2.0% 0.8% years of less bad trendline
Non-revolving credit 4.7% 0.7% one month improving

If student loans are backed out, consumer credit contracted slightly at an annual rate of 0.9%.

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

Note: Student Loans have never declined during this period.  Where student loans are shown at 100% of the growth, consumer credit (including student loans) declined in that particular month evn though student loans outstanding increased.

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.

There was a pause in the expansion of consumer credit in August – but the growth continued in September.  It is student loans which has been literally the entire growth of consumer credit.

Please refer to the background article What Gives With Consumer Credit? Econintersect believes consumer credit levels are now within historical channels.

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