Consumer Is Again Addicted To Credit

by: Steven Hansen

Late last week the consumer credit report for December 2013 was issued by the Federal Reserve. I am beginning to wonder if the consumer is not getting drunk again on credit.

The first indication something is up is the growing divergence between consumer spending and consumer income occurring over the last few months.

Real Disposable Personal Income (blue line) and Real Personal Consumption Expenditures (red line)

Since the end of the Great Recession, the consumer seemingly went cold turkey from deficit spending (whilst the government did the opposite). Now the government is cutting back on the rate of growth of deficit spending, whilst the consumer is doing the opposite.

Indexed to Jan 2000, Growth of Real Disposable Income (blue line) to Real Expenditures (red line)

As you can see from the above graph, consumer deficit spending is a 2013 phenomenon - previously, since the Great Recession, the consumer was not outspending income.

The graph below shows consumer credit outstanding (this data series does not include mortgages) is now near historical highs again.

Ratio of Total Consumer Loans Outstanding to Consumer Spending

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 even on an inflation adjusted basis, consumer credit is growing.

Inflation Adjusted Consumer Credit

Consumer credit may again be in the warning zone.

My usual weekly economic wrap is in my instablog.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.