The headlines say consumer credit rate of annual growth significantly improved from last month. There should be a big asterisk on the headlines saying there was significant downward revision of the previous months' data.
There was again downward revision - this month significant - of the previous months' data. The year-over-year growth this month is actually lower than last month. The exception is student loans where the previous month's data was revised upward.
Not only does this data set suffer from backward revision (at times moderate to significant enough to change trends), but the use of compounding (projecting monthly change as annual change) by the Federal Reserve to determine consumer credit growth rates exaggerates the volatility in this data. [and this month the headline data shows good growth even though the year-over-year growth is less than last month.]
- the default rate on credit cards is growing year-over-year - and now higher than the levels when the Great Recession started.
- that the amount of consumer credit outstanding relative to consumer expenditures is near 21st century highs - but recently the rate of growth has slowed.
- Household Debt Payments As A Percent of Disposable Income is near all time lows but has been gently growing for the last two years.
A quick look at what is going on is summarized in the graph below which shows a gentle deceleration of consumer credit (blue line in graph below) over the last year.
Last month's headline said:
In April, consumer credit increased at a seasonally adjusted annual rate of 3 percent. Revolving credit increased at an annual rate of 2-1/2 percent, while nonrevolving credit increased at an annual rate of 3 percent.
This month's headlines said:
In May, consumer credit increased at a seasonally adjusted annual rate of 7-1/2 percent. Revolving credit increased at an annual rate of 11-1/2 percent, while nonrevolving credit increased at an annual rate of 6-1/4 percent.
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||+0.2 %||+4.8 %||+0.3 %||+3.3 %|
|Revolving||+0.2 %||+5.4 %||n/a||n/a|
|Non- Revolving||+0.1 %||+4.6 %||+0.3 %||+2.0 %|
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 0.1 % month-over-month and year-over-year growth is 8.5 % year-over-year.
- Revolving credit (e.g.credit cards - and this series includes no student loans) and had been slightly accelerating since 2010. This month there was an acceleration in the rate of year-over-year growth.
Year-over-Year Growth Rate Student Loans (Government Plus Private Sector)
The market expected (from Nasdaq / Econoday) consumer credit to expand $10.0 B to $22.6 B (consensus = $12.4 billion) versus the seasonally adjusted headline expansion of $24.6 billion reported.
Note that this consumer credit data series does not include mortgages.
The Econintersect analysis is different than the Fed's:
- an effort is made to segregate student loans from consumer credit to see the underlying dynamics; Note that we are only using 70% of the value of student loans issued as only the US government accounts are up to date - and the Fed's total student loan account (SLOAS) is only issued quarterly.The trend lines are normally representative.
- this analysis expresses growth as year-over-year change, not one month's change being projected as an annual change which creates significant volatility and distortion.
- where our analysis expresses the change as month-over-month, month-over-month change is determined by subtracting the previous month's year-over-year improvement from the current month's year-over-year improvement.
The commonality between the Fed and Econintersect analysis is that consumer credit is expanding whether one considers student loans or not. The difference is how we look at the RATE of growth.
Since the Great Recession, much of the increase in consumer credit had been from student loans. The following graph shows the flow into consumer credit including student loans (blue line) against the flow into student loans alone (red line).
To continue reading this analysis - [click here].
Other Economic News this Week:
The Econintersect Economic Index for July 2018 improvement cycle continues and remains well into territory associated with normal expansions - although this month it forecasts slightly weaker growth. There are continuing warning signs of consumer over-consumption, but the relationship between retail sales and employment improved.
Please visit our landing page to view a summary of all of our analysis this past week.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.