Why is everyone saying consumer credit is falling? It’s not.
But, everywhere I look, everybody is saying it is.
I would like to be true to the data and not just take the government’s seasonally-adjusted numbers at face value.
Judge for yourself. Here’s the data:
This is what everyone is focused on – the seasonally-adjusted data. The part in red shows consumer credit down $12 billion.
But, what about the actual unadjusted data?
What do you know, it’s up $7 billion. It is indeed down $4 billion for revolving credit as banks are cutting credit card limits. But, non-revolving credit is up over $11 billion. It was decreasing and is down 4.4% year-on-year (see the section highlighted in green above), but that ended this month.
Yes, I too believed that consumers were poised to begin deleveraging, but with stocks up 60%, interest rates at record lows, and house price declines stalled, why would you do that?
Conclusion: consumer credit is increasing, not decreasing. I wish people would actually look at the data.
The question you should be asking is not whether consumer credit is increasing, but whether it will continue to do so after August and cash for clunkers.
Sources
G.19 Current – Federal Reserve
G.19 Historical – Federal Reserve
Ed, with that increase seemingly coming solely from non-revolving, how much of that increase do you think is attributable to auto-loans connected with C4C?
A lot of it is probably – especially when you see how auto sales collapsed post C4C. So, as I said, the right analysis is not “credit is decreasing” but “credit may have artificially increased due to one-off items. Let’s wait for more dat to find out.”
Absolutely. I’m glad/appreciate that you always point out the unadjusted
numbers for everything, I don’t know why that isn’t more common.
Why disclude a seasonal adjustment? I am not positive as to why it would naturally jump in August, but back to school shopping seems like one obvious answer. I guess my question would be, would you want to ignore seasonal adjustments for toy sales in December too?
If you want to ignore those trends, then take the unadjusted data and look at year over year figures. August ’09 was down 4.4% compared to down 4.1% in July ’09 vs. July ’08. In other words… consumer credit is falling.
Well said.
As I said at Naked Capitalism:
Jake, you can look at the y-o-y data for SA or NSA data and they say the same thing. We are down.
When I reported the data I said:
https://pro.creditwritedowns.com/2009/10/consumer-credit-falls-4-4-from-year-ago-levels.html
You would find the same for the SA data.
But looking at SA month-to-month data in isolation and saying the sky is falling completely ignores the fact that consumer credit just ticked up for the first time since December. One could explain this via cash for clunkers, but to overlook it doesn’t make sense to me.