Chart of the day: consumer credit growth

UPDATE: The latest chart on U.S. consumer credit growth is here.

I have been focusing on debt as a primary contributor to the slump the U.S. is experiencing. We’ve seen skyrocketing Debt-to-GDP and Mortgage Debt. Now, I want to look at consumer credit. The Fed releases a monthly statement showing consumer credit, both revolving and non-revolving debt. These statistics date back to 1944, so they give a nice view of how debt is managed over the course of a business cycle

What you see in the chart is that debt growth (adjusted for inflation) always increases as the business cycle ramps up. Then as we near recession, it tails off, going negative in every recession since 1970 (1970, 1973-1975, 1980-1982, 190-1991).

What is peculiar about this particular cycle is that debt growth never bottomed in 2001. Instead it kept going and ultimately bottomed in Jun-Jul 2006 at -0.6% real growth y-o-y. It then actually rose again through to August 2007 and has since started back down. I don’t know what to make of this early bottoming and rise again, but there you have it.

I suspect the Fed rate interventions of 2001 caused this anomaly, suggesting we should have bottomed in 2001 and had a debt purge then that we are still waiting to have today.

This post is a part of my ‘‘ series.

  1. Anonymous says

    Like you website, keep up the great work.

    I believe the reason we haven’t seen bottoming in 2001-03 is b’cos of lax in regulation as well as (as you pointed out) cheap credit. And probably lot of folks depended on it too-much. I bet the % of credit/debt per person in US is at an all-time-high.

    I am afraid the last few years of growth has been purely due to this and the HELOCs.

  2. Edward Harrison says

    I think you’re right about the high levels of debt. Servicing that debt is tough and, from what I have heard, we are near a record in terms of debt service costs as a percentage of income. The US consumer has been miraculous in the ability to take on this much debt and keep spending.

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