Is Consumer Credit Fueling Retail Sales Growth?

Written by Steven Hansen

Last week I posed the question whether the consumer was returning. It seems to be a common perception that consumer credit is driving the retail economic expansion. Below is a set of graphs that may surprise.

Consumer credit is expanding at an annual rate of 7.75% according the G.19 consumer credit report released last week by the Fed. If one digs a little into the data, and if student loans are backed out, consumer credit grew 0.1% year-over-year, and declined marginally month-over-month.

Yes, one could argue there is a gradual increase in the trend line in consumer credit if student loans were removed – but the year-over-year increase is only 0.1%. On the surface, this is hardly fuel for a credit based consumer resurgence.

It has not been until the March 2010 data, that total outstanding consumer credit (excluding student loans) actually began expanding year-over-year. With the current trends, it should be expected consumer credit will begin to add fuel to the retail fire instead of acting like a tailwind.  To date expanding consumer credit has been a soft push only – roughly consumer credit expanded in March half as fast as retail sales.  And before the first of this year contracting consumer credit had been a headwind for sales for nearly three years.

These graphs only tell part of the story. What is missing is the write-offs in consumer credit. It is reported that in March that there were $20 billion in consumer credit write-offs according to CUNA. Write-offs distorted the point where new credit began fueling a retail resurgence. This $20 billion would have accounted for all the retail growth year-over-year in March.

Going forward – it would not be a big surprise if credit expansion was a big driver for a strengthening retail sector – depending, of course, that another recession is not about to start.

Other Economic News this Week:

The Econintersect economic forecast for May 2012 shows moderate growth. There was some improvement in the government pulse point, but degradation in some of our transport related pulse points. Overall, the pluses and minuses balanced out.

ECRI has called a recession. Their data looks ahead at least 6 months and the bottom line for them is that a recession is a certainty. The size and depth is unknown but the recession start has been revised to hit around mid-year 2012.

This week ECRI’s WLI index value declined for the third week in a row to -0.1, after the previous twelve weeks of index improvement. This index is now showing the economy six month from today will be as bad as it is today.

Initial unemployment claims essentially decreased from 388,000 (reported last week) to 365,000 this week. Historically, claims exceeding 400,000 per week usually occur when employment gains are less than the workforce growth, resulting in an increasing unemployment rate (background here and here).  The real gauge – the 4 week moving average – rose from 381,750 (reported last week) to 383,500. Because of the noise (week-to-week movements from abnormal events AND the backward revisions to previous weeks releases), the 4-week average remains the reliable gauge.

Data released this week which contained economically intuitive components (forward looking) were rail movements and the import portion of the trade balance. Rail movements data this week is still indicating a moderate expansion if one ignores coal.  Imports returned to the lower end of the growth range that imports have remained in since mid-2011.

Weekly Economic Release Scorecard:

America: What is China’s Political System, Anyway?
Export and Import Prices Continue to Moderate in April 2012
March 2012 Trade Data Still Indicating Expanding Economy
Sports Economics Around the Globe
The Citadelia Political Economy Fantasy
Wholesale Sales Have a Bad Month in March 2012
Stay Safe With Gold And Silver Part 2, Stocks Or Bullion?
March 2012 JOLTS Continues to Predict Jobs Growth
Facebook is No. 2: Worth $30 Billion (NOT $100 B)
Student Loans Continue to Drive Consumer Credit in March 2012
Stumbling Blocks to Spending Our Way to Prosperity
April 2012 Employment Trends: Predicts Better Jobs In Coming Months
Are Junk Bonds Too Popular?
April 2012 Rail Movements: Worst Coal Shipment Decline Ever
The World: Darkness Slowly Descends
The Week Ahead: Candidates on Parade
Past Predictions Reviewed
Bankruptcy Costs Affect America’s Debt Crisis
Reasons for Gold to Go Higher
Trefis: Week in Review 04 May 2012
Will Lack of U.S., Canada Support Impede the Eurozone Firewall?
April 2012 Ceridan-UCLA Index: Improves??

Bankruptcies this Week: Corporate Management Solutions