January 2012 Consumer Credit Expands on the Back of Student Loans

Written by Steven Hansen

According to the Federal Reserve, January 2012 consumer credit increased at an annual rate of 8.5%. Revolving credit increased at an annual rate of 4.5%, while nonrevolving credit increased at an annual rate of 14.75%.

The entire growth in credit this month is due to student loans.

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 unadjusted data:

Year-over-Year Growth Rate Change in rate of growth from Previous Month Trend
Total Credit 4.3% 0.7% five month and a general ten month improving trend
Revolving credit 0.8% 0.3% third month of YoY growth after 33 months of decline
Non-revolving credit 6.0% 0.9% 16 months with positive YoY growth

If student loans are backed out, consumer credit contracted month-over-month at an annual rate of 7.6% – but is down 0.4% year-over-year.

Econintersect backs out student loans as they are currently consuming an unusual and inordinate portion of USA consumer loans. In January, student loans represented the entire growth in credit.

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 since September 2011. It is student loans which has been literally the entire growth of consumer credit in 2011 – and January 2012 is continuing this trend.

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 (less shelter) – this is expressing consumer credit in 1982 dollars.  It is evident on an inflation adjusted basis, consumer credit is beginning to grow.

Econintersect believes consumer credit levels are now in its historical channel from the 1990’s.

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