Consumer Credit Expansion Continues in December

According to the Federal Reserve, December 2011 consumer credit increased at an annual rate of 9.25%. Revolving credit increased at an annual rate of 4.1%, while nonrevolving credit increased at an annual rate of 11.8%.

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 towards a cash society – a quantum shift which changes the amount of consumption. Watching consumer credit provides confirmation that this New Normal shift continues.

The Econintersect summary of the data based on the December 2011 releases and unadjusted data:

Year-over-Year Growth Rate Change in rate of growth from Previous Month Trend
Total Credit 3.7% 1.3% four month and a general seven month improving trend
Revolving credit 0.01% 2.4% second YoY improvement in years
Non-revolving credit 5.5% 0.8% 15 out of last 16 months with positive growth

Note that Decembers have a higher expansion of credit than other months.  If student loans are backed out, consumer credit expanded month-over-month at an annual rate of 14.1% – but is down 0.9% year-over-year.

Econintersect backs out student loans as they are currently consuming an unusual and inordinate portion of USA consumer loans.  In December, student loans assumed a very low contribution for the second month in a row.

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 even 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 outstanding in August – but the growth continued in September, October, November and December. It is student loans which has been literally the entire growth of consumer credit in 2011 – although in November and December 2011, student loan growth was less than 30% of outstanding consumer credit.

This was the largest growth of consumer credit since August 2008.

Caveats on the Use of Consumer Credit

This data series does not include mortgages, and is not inflation adjusted.

The graph below shows consumer credit outstanding (this data series does not include mortgages) is slightly less than 23% of annualized consumer spending – down from a high of over 26% in the 2000s, but still above the averages before the mid 1990s.

To get a feel of inflation adjusted consumer credit, the following graph is inflation adjusted consumer credit using the CPI-U – this is expressing consumer credit in 1982 dollars.

Econintersect believes consumer credit levels are now nearing historical channels.

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