US Consumer Credit Grows Less Than Expected In June

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The Fed’s G.19 Release on Consumer Credit for the month of June shows that consumer credit, a measure of household debt that includes auto loans, student loans and credit card outstandings, grew to $ 3.211 trillion compared to $ 3.194 trillion in the month of May. Note that home loans are not included in this report.

Consumer credit therefore increased $ 17.2 billion in June, compared to the market’s expectations of an increase of $ 18.55 billion.

Growth in consumer credit

The report, which also includes information on credit terms, is a valuable gauge of economic conditions because the availability of credit (and its terms) affects the off-take of consumer durables such as vehicles, furniture, tuition and appliances.

The table below shows the annualized growth rates of consumer credit and its constituents over the last three quarters and last three months:

Growth % Annualized Q4 2013 Q1 2014 Q2 2014 April 2014 May 2014 June 2014
Total Consumer Credit 5.4 6.7 7.8 9.5 7.4 6.5
-Revolving 2.0 1.8 5.4 12.3 2.4 1.3
-NonRevolving 6.7 8.5 8.8 8.4 9.3 8.4

(N.B. Seasonally adjusted. Some data is provisional. Kindly refer to the original Fed release for qualifications and remarks)

Credit card dues up sharply

Note that revolving credit, which is mostly credit card dues, grew at a sharp pace in the second quarter compared to the previous two quarters with a pronounced increase seen during the month of April 2014. However, the growth rate in these dues has tapered off during the month of May and June.

Revolving credit grew by only about $ 1 billion in June, while non-revolving credit such as auto loans and student loans rose by $ 16.3 billion.

Nevertheless, it is good to observe the steady rise in the non-revolving credit levels from +6.7% in Q4 2013 to +8.8% in the latest quarter, auguring well for the state of the economy.

Default rates

Growth in outstanding credit is fine, but at what quality? The following chart of the S&P/Experian Consumer Credit Default Indices provides an indication of default rates across overall consumer credit, auto loans, home loans and bank cards.

Consumer Credit SP-Experian-3yr-default-index

On a long-term basis the indices show that consumer default rates have been declining. Yet, it is pertinent to observe that credit card default (represented by the purple line) and auto default (the dark green line) are showing a rising tendency in recent months.

Interest rates

The graph below shows interest rate trends from 2008 till May 2014 on auto loans (both commercial banks and auto finance companies) and on consumer loans and credit cards by commercial banks. Some data on interest rates by auto finance companies is temporarily not available because, according to the Fed, “the statistical foundation for these series has deteriorated.”

Consumer Credit

Clearly, interest rates on auto loans have fallen much more after 2008 compared to credit cards and personal loans.

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