Monday, March 8, 2010

Consumer Credit Expands

From the Federal Reserve:

Consumer credit increased at an annual rate of 2-1/2 percent in January 2010. Revolving credit decreased at an annual rate of 2-1/4 percent, and nonrevolving credit increased at an annual rate of 5 percent.

First, revolving credit -- credit cards etc.. -- decreased indicating consumers are dumping cards and banks are dumping customers. However, non-revolving credit increased.

Let's flesh out the data.

Note that consumer credit starting dropping at the end of 2008 and continued to drop for all law year. We've only seen a possible bottom this month.

Note that in almost 30 years of data, this is the first time we've seen a decrease. The pace of expansion was moderate in the early 1980s followed by a slightly steeper increase. Demand leveled out in the early 1990s leading to a steep increase that lasted until the beginning of this recession.

Now, let's add in the debt service payment ratio and household obligations ratio:

The household debt service ratio (DSR) is an estimate of the ratio of debt payments to disposable personal income. Debt payments consist of the estimated required payments on outstanding mortgage and consumer debt.The financial obligations ratio (FOR) adds automobile lease payments, rental payments on tenant-occupied property, homeowners' insurance, and property tax payments to the debt service ratio.

Both of these ratios started to increase a bit before 1995 and continued to increase until the latest recession. Note the steep drop over the last ~year as households have sought to de-leverage themselves.

Let's add one more piece of data from the latest senior loan officer survey:

Click for a larger image.

Notice that willingness to make loans hit a low point at the end of 2008, but has since opened up.