Consumer credit falls 4.4% from year ago levels

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 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).

What I am looking for is a sign of how consumer credit is proceeding as compared to output. But since we don’t have any monthly output data, we’ll have to wait. I will just comment on the trend.


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.


G.19 data series – Federal Reserve

  1. hbl says

    “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.”

    I’m not quite so reassured by the current data… During the onset of the Great Depression (from 1929 to 1932) nominal private sector debt declined 18% while at the same time the private sector debt-to-GDP ratio spiked from 175% to 235% (see graph and source). This was of course because nominal GDP fell so dramatically, and our fall in GDP so far has thankfully been much less dramatic. But if the private sector’s reduction in nominal debt continues (beyond blips in any given quarter), I don’t think there’s any avoiding an outcome somewhere on the spectrum of Japan through Great Depression, whatever happens to the debt-to-GDP ratio at first.

  2. Anonymous says

    Consumer is trying to retrench and pay down debt, yet gov with klunkers, housing tax crddit , low rates etc is trying to get them to lever up….it isn’t working, we are trying to deleverage…unwind.

    But we are witnessing the most PROLIFIC expansion of money in history of the world, US and CHINA leading the way. But the banking system is holding nearly $800 B in excess reserves….you have to wonder WHY!! WHY bail them out, and have then NOT LEND….a dime!

    If they got more enthusiastic they might….and add normal velocity of 7X and you have potential for about $6 TRILLION into economy…bond bubble would burst (longest running bull since 1980) yields would crush ANY recovery….has anyone seen the recovery…send it my way!

    The FED has a plan to drain the swamp of liquidity…NOT to worry, NO INFLATION FEARS, yet gold at $1,040 (this is happeneing with only 3-4% US $ bulls and ober 90% EQUITY BULLS) AN ACCIDENT IS WAITING TO HAPPEN…..when the buying historic in nature by its 60% rise… all momo and liquidity bases….when the music stops….and in meantime the maladjusted screwed up economy has been whithering away and MILLIONS in despeair have given up looking for jobs….what is recovery without them? A WALL STREET PONZINOMIC SCHEME …the too big to fail now BIGGER BANKS make policy, run the country….laugh all the way to bank..and NO INDICTMENTS…its all BS


  3. Anonymous says

    Look closer at revolving consumer credit – credit cards – to see first-ever y-o-y declines this year, down 7.8% in August to slighly less than $900bn.

    Considering revolving credit grew at annual 5.5% pace this decade through 2008, and 11.0% annually since 1979, it effectively represents about $160 billion, 1.2% of GDP, of purchases foregone.

    Non-revolving credit down far less, and this year largely due to automobile credit companies back in the mix after being bailed out (GMAC) and the impact of cash-for clunkers, about $18 billion of new non-revolving debt in August alone.

    Collapsing revolving consumer credit will weigh heavily on this year’s holiday shopping season, along with unemployment and foreclosures.

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