Weekly Economic Release Summary: Assessing If Consumer Credit Outstanding Is A Headwind To Economic Growth

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by: Steven Hansen
Summary

Consumer credit rate of growth has been in a tight band for the last three years.

There's a general correlation between consumer credit growth and personal consumption expenditures.

Personal consumption has weakened recently, and it's accompanied by weak wage growth. Is paying back debt slowing the economy?

This was a very light week for economic releases. My deeper look for this week is on consumer credit growth - which was little changed from last month.

From my perspective, consumer credit growth is a double-edged sword. Too much credit growth will hurt future economic growth (when the debt is repaid), and too little credit growth slows current growth.

Currently, consumer credit year-over-year growth is nearly the same as consumer spending - and historically they tend to rise at nearly the same rate.

Since the Great Recession, student loans have been a significant influence on consumer credit, and when we back out student loans - consumer credit growth is less than personal consumption.

Since 4Q2016, consumer credit outstanding has been fairly constant at 19% of GDP - and remains plateaued at historic highs.

Has the size of consumer credit outstanding become a headwind to economic growth?

If there is any slowdown in the rate of personal income growth the historically high level of consumer debt may be a "bridge too far" for the economy. For most of 2018 personal income growth averaged better than a 0.3% increase month-over-month. For the first three months of 2019 it has been less than half of that. Unless this changes we would issue a "headwind warning." (Graphic below of month-over-month personal income growth is from Trading Economics.)

Economic Releases This Past Week

The Econintersect Economic Index for May 2019 long-term decline began in July 2018 and continued this month after last month's marginal improvement. This forecast flies in the face of the continuing improvement trend of real GDP. There currently is a disconnect between GDP and the Econintersect Economic Index. Part of the reason is that GDP adjusts for trade, and we believe imports are an essential element of economic activity on Main Street. Further, GDP believes economic activity includes inventory, while Econintersect ignores inventory. If imports and inventory were ignored - GDP growth would have been less than half of the headline number.

The following table summarizes the more significant economic releases this past week. For more detailed analysis - please visit our landing page which provides links to our complete analyses.

Economic Release Summary For This Week

Release Potential Economic Impact Comment
April Conference Board Employment Index marginal

The Conference Board's Employment Trends Index - which forecasts employment for the next 6 months slightly improved with the author's saying "the behavior of the ETI in recent months suggests that employment will grow more slowly in the coming quarters than it did in the past year, which is to be expected in such a tight labor market".

Econintersect evaluates the year-over-year change of this index (which is different than the headline view) - as we do with our own employment index. The year-over-year index growth rate decelerated by 0.6 % month-over-month and grew 2.3 % year-over-year. The Econintersect employment index likewise declined.

March Consumer Credit mixed

This month's headlines said:

Consumer credit increased at a seasonally adjusted annual rate of 4-1/4 percent during the first quarter. Revolving credit increased at an annual rate of 1-1/2 percent, while nonrevolving credit increased 5-1/4 percent. In March, consumer credit increased at an annual rate of 3 percent.

Econintersect's view:

Unadjusted Consumer Credit Outstanding

Month- over- Month Growth Year- over- Year Growth Month- over- Month Growth without Student Loans Year- over- Year Growth without Student Loans
Total +0.0 % +5.0 % +0.1 % +3.9 %
Revolving -0.1 % +3.4 % n/a n/a
Non- Revolving +0.1 % +5.6 % +0.2 % +4.2 %

Overall takeaways from this month's data:

  • Student loan year-over-year growth rate has been decelerating gradually since the beginning of 2013.
  • Student loans growth rate (US Government owned) decelerated 0.2 % month-over-month and year-over-year growth is 7.4 % year-over-year
  • Revolving credit (e.g.credit cards - and this series includes no student loans) and had been in a tight range for the last year.
March JOLTS marginal

The BLS Job Openings and Labor Turnover Survey (JOLTS) can be used as a predictor of future jobs growth, and the predictive elements show that the year-over-year growth rate of unadjusted private non-farm job openings was relatively the same as last month.

The unadjusted data this month remained below average for the rate of growth seen in the last year. With this low average rate of growth, JOLTS is predicting lower employment growth than we have seen over the past year.

March CoreLogic Home Price Index n/a

CoreLogic's Home Price Index shows that home prices in the USA are up 3.7 % year-over-year (reported up 1.0 % month-over-month). CoreLogic HPI is used in the Federal Reserve's Flow of Funds to calculate the values of residential real estate. The quote of the day was in this data release:

.... The U.S. housing market continues to cool, primarily due to some of our priciest markets moving into frigid waters ....

March International Trade almost no growth

Trade data headlines show the trade balance slightly worsened from last month - and the rolling averages were mixed.

The data in this series wobbles and the 3-month rolling averages are the best way to look at this series. The 3-month averages slowed for both imports but accelerated for exports.

Econintersect uses the import trade data as a factor in determining the acceleration or deceleration of the economy - but does not believe the negative trade balance per se is an economic issue.

Note that the headline numbers are not inflation adjusted - and one adjusted reveals little year-over-year growth.

April Producer Price Index marginal

The Producer Price Index year-over-year inflation was unchanged at 2.2 %.

April Wholesale Trade continues to slow

The headlines say wholesale sales improved month-over-month with inventory levels down but still very elevated. Our analysis shows a deceleration of the rate of growth for the rolling averages.

This sector's growth continues to trend down. This sector is deep in contraction if one inflation adjusts the data.

Inventory levels this month remain at recessionary levels.

April Consumer Price Index marginal

According to the BLS, the Consumer Price Index (CPI-U) year-over-year inflation rate was 2.0 % year-over-year (higher than the reported 1.9 % last month). The year-over-year core inflation (excludes energy and food) rate worsened from 2.0 % to 2.1 % and is at the target set by the Federal Reserve.

Energy's increase was the main reason inflation advanced. Medical cost inflation was unchanged at 2.3 % year-over-year.

Surveys none

none this week

Weekly Rail Counts Definitely not positive news

Rail so far in 2019 has changed from a reflection of a strong economic engine to contraction. Currently, not only are the economic intuitive components of rail in contraction, but the year-to-date has slipped into contraction.

My usual blog post is in my instablog.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.