Consumer Credit is a difficult metric to understand
Most economic blogs pushed out analysis and graphs on yesterdays consumer credit release. The consensus seems to be that consumer debt has risen far too high and that we should be panicking. I do not completely reject this, but I think the panic level is too high. Here is what the typical graph looks like:
There are two very simple things wrong with this, and they are both painfully simple. First, the US population has been increasing since 1980 and these metrics should be based on some sort of per capita basis (it could be argued only aged 18-65 or something, but my point is some sort of population demographic). The second problem is that these numbers are not inflation-adjusted. These two items make the above graph 100% meaningless. Here is a more accurate picture of consumer credit:
While the scale of dollars per person is not at all useful to think of, it at least displays the data in a more comparative basis. This is the graph we should be basing our conclusions on, which fortunately leads me back to the same conclusion - rising consumer credit is a problem.
All that said - this months numbers were significantly higher than usual (though it not possible to see a 1 month change on a 26 year graph). The gains this month were both in revolving and nonrevolvinging credit. The revolving credit was not surprising, given last weeks strong retail reports (and I suspect this is due to Easter spending being pushed more from March into April this year compared to lastNonrevolvinging credit growth exceeds revolving, and has since 2000, though that gap will close in the months to come.
Consumer credit is broken down into three categories: auto, revolving(ie, credit card), and other. Since we already have indications on total consumer spending well before this release, there is little to be gained from learning what portion of spending was financed through acquisition of debt. Periods of strong spending can be accompanied by relatively weak credit growth and vice versa, so this measure fails even as a coincident or lagging indicator. Credit cards (revolving credit) make up 37% of total consumer credit which stands at 2.16 trillion. Non-revolving credit helps finance auto purchases, tuition (including Sallie Mae), vacations, and other forms of consumer spending.
There are two very simple things wrong with this, and they are both painfully simple. First, the US population has been increasing since 1980 and these metrics should be based on some sort of per capita basis (it could be argued only aged 18-65 or something, but my point is some sort of population demographic). The second problem is that these numbers are not inflation-adjusted. These two items make the above graph 100% meaningless. Here is a more accurate picture of consumer credit:
While the scale of dollars per person is not at all useful to think of, it at least displays the data in a more comparative basis. This is the graph we should be basing our conclusions on, which fortunately leads me back to the same conclusion - rising consumer credit is a problem.
All that said - this months numbers were significantly higher than usual (though it not possible to see a 1 month change on a 26 year graph). The gains this month were both in revolving and nonrevolvinging credit. The revolving credit was not surprising, given last weeks strong retail reports (and I suspect this is due to Easter spending being pushed more from March into April this year compared to lastNonrevolvinging credit growth exceeds revolving, and has since 2000, though that gap will close in the months to come.
Consumer credit is broken down into three categories: auto, revolving(ie, credit card), and other. Since we already have indications on total consumer spending well before this release, there is little to be gained from learning what portion of spending was financed through acquisition of debt. Periods of strong spending can be accompanied by relatively weak credit growth and vice versa, so this measure fails even as a coincident or lagging indicator. Credit cards (revolving credit) make up 37% of total consumer credit which stands at 2.16 trillion. Non-revolving credit helps finance auto purchases, tuition (including Sallie Mae), vacations, and other forms of consumer spending.
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