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Economy in Brief

U.S. Consumer Credit Becomes Third Rail Of U.S. Economy
by Tom Moeller February 08, 2010

Consumers steered away from credit last year.  In fact, they avoided it to a record degree as the outstanding balance fell by $102.3B, or 4.0%, by yearend from 2008. Released late on Friday, the December decline of $1.8B was the fifteenth monthly drop since summer 2008 though it was relatively small. Consumer credit outstanding as a percentage of disposable income fell to 22.0% from its 2005 high of 24.7%. Nevertheless, these rates remain up from the low near 16% in 1992. 

Revolving credit usage fell $8.5B in December and by a record 9.5% during the year. That was part of a pullback that began late in 2008. Finance companies lowered lending by more than one third y/y, commercial bank lending fell a record 14.1%, pools of securitized assets fell 2.6% and savings institutions pulled back lending by 6.1% y/y. Loans from credit unions offset some of these declines with a 6.3% increase.

Usage of non-revolving credit (autos & other consumer durables), which accounts for nearly two-thirds of the total, rose $6.8B for December and recouped most of the November decline. Nevertheless, the 0.7% y/y decline was the first since 1992. It reflected a 13.8% shortfall in pools of securitized assets, an 11.7% decline in finance company lending and a 7.2% drop in nonfinancial business credit extensions. These declines were mostly offset by the federal government & Sallie Mae which expanded lending by more than two-thirds y/y.

These figures are the major input to the Fed's quarterly Flow of Funds accounts for the household sector.

Credit data are available in Haver's USECON database. The Flow of Funds data are in Haver's FFUNDS database.

Measuring the equilibrium real interest rate from the Federal Reserve Bank of Chicago is available here.

Consumer Credit Outstanding (m/m Chg, SAAR) December November October Y/Y 2009 2008 2007
Total $-1.8 $-21.8B  $-5.7B -4.0% -4.0% 1.6% 5.6%
  Revolving $-8.5 $-13.8B $-6.7B -9.5% -9.5 1.9% 7.8%
  Non-revolving $6.8 $-8.0B $1.1B -0.7% -0.7% 1.4% 4.4%
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