Consumer Credit Falls 4.4% From Year Ago Levels
Today’s Daily Angle comes from Wikinvest Wire member Edward Harrison of CreditWritedowns.com. You can read thefull article on Edward’s blog.
The Federal Reserve has just released the most recent data on consumer credit. The data show outstanding consumer credit falling to $2.47 trillion in August from a December 2008 peak of $2.59 trillion – on a non-seasonally adjusted (NSA) basis. That is down 4.4% from the year ago period, continuing the acceleration of the year-on-year change that has been in place for 15 straight months. The seasonally-adjusted data tells an even worse story.
Clearly, consumers are not off to the races. Nevertheless, the NSA data do show a tiny pickup in overall consumer credit, although you have to go to the third decimal place to see it (from $2.460 trillion in July to $2.467 trillion in August. You also have to question the seasonal adjustments given where we are in the business cycle. So I am not using this data set.)
I was especially interested in the Federal Reserve’s data on Q3 consumer credit since I just crunched the numbers on their quarterly data and found that deleveraging in the household sector was not preceding as quickly as I had assumed (if at all).
The trend is down. Because of the decline in higher than normal inflation in 2008, we saw two peaks in year-on-year growth in credit. The first was August 2007 right before the recession began, when, adjusted for inflation, total consumer credit was growing 3.6% year-on-year. This went negative, reaching a trough of –1.5% in August 2008. Before climbing to a second peak of 1.5% in December. Since then, the wheels have fallen off the cart and we are now down 2.9% year-on-year adjusted for inflation (all of the figures are NSA).
But, remember nominal GDP is down 2.4% year-on-year through Q2. That is the key here. When one makes a comparison of nominal GDP to consumer credit, there had been little deleveraging through Q2 2009. Moreover, since prices are still falling (NSA CPI is –1.5% year-on-year through August), the change in nominal GDP will be lower than real GDP for Q3.
It is still not clear to me that debt levels, when measured as a percentage of GDP are decreasing significantly. I am, therefore, much less sold on the prospect of a secular deleveraging in the household sector than I was yesterday.
And since consumer credit is much more volatile than mortgage-related debt and a much smaller percentage of household debt, I am more interested in how the mortgage market is doing. Right now, mortgage applications are through the roof because of ridiculously low interest rates.
