The monthly consumer credit data is always an interesting data point. Both bulls and bears could look at the same data point and come to completely different conclusions. Yesterday's report saw a massive increase in consumer credit, far in advance of expectations. Those on the bull side of the economy will (and did) say that consumers are feeling more comfortable with the economy, hence are apt to access their credit lines. Those on the bear side will (and did) say that consumers are in relative desperation mode, tapping credit as their wages are not keeping up with expenses. No one ever knows the exact truth, and I'm sure in a country of hundreds of millions of consumers, some people fall into both bucket.
That said, there was actually a DECREASE in revolving debt in yesterday's report. The massive growth came in non revolving debt, and was centered on federal student loans. Long time readers know I think this is a Ponzi in a making – indeed I read a few days ago that over 1 in 4 student loans is now delinquent – and of course the federal government is behind many of those. Yet they keep doling them out like free candy. Essentially it's a big subsidization scheme – lots of money out, with quite a bit never coming back.
This also might be explaining where some of our "missing Americans" are in the monthly labor data as the participation rate has fallen off the cliff. They are back in school, taking on debt (that many will be delinquent on in a few years), and hence helping to suppress the unemployment rate.
Let's take a closer look
- U.S. consumer credit expanded in January, driven largely by a surge in federal student loans. Consumer credit outstanding expanded by $17.78 billion to $2.512 trillion, Federal Reserve data showed Wednesday. The rise followed big gains in November and December. Economists surveyed by Dow Jones Newswires had forecast an $11.00 billion increase.
- Nonrevolving credit–which includes student loans–was up $20.72 billion, to $1.711 trillion, the biggest dollar increase since November 2001.
- Federal student credit outstanding rose to $453 billion in January from $425 billion in December. The figure is up more than four-fold from 2008–a sign high joblessness in the U.S. has prompted many people to go back to school.
- Revolving credit, which includes credit-card debt, decreased in January by $2.95 billion, to $800.85 billion. December revolving credit rose a revised $3.65 billion.
- The consumer-credit report doesn’t include numbers on home mortgages and other real-estate secured loans. But the Fed data are important for the clues to behavior by consumers, whose spending helps propel the economy. Consumers may be paying down credit cards after running up debt in November and December for the holidays. Or they may be uneasy about the economy and holding back on some purchases.
Also keep in mind, with many millions of households living 'rent free' in houses they have not payed the mortgage on in quarters or years – one would think credit card lines would be drawn down as people use that cash flow to pay off debt or purchase other items with cash rather than debt.
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