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Economy in Brief

Credit Market's Net Borrowing Stabilizes in Q1, Following Year-Long Contraction
Carol Stone June 10, 2010

Activity in U.S. credit markets experienced a relative recovery in Q1, as total liabilities contracted a mere $10.3 billion, SAAR.  This was a sharp improvement from the $841.3 billion rate of shrinkage in Q4 2009 and the year's average reduction of $610.6 billion.  These debt aggregates come from the Federal Reserve's flow-of-funds statistics reported today, June 10, for Q1 2010.

By sector, the biggest change was in nonfinancial corporations, which raised debt at a $289 billion annual rate, turning around from the net paydown of $57 billion in Q4.  Companies had the largest amount of net commercial paper issuance since Q3 of 2008 and the largest volume of net new corporate bonds in a year. The federal government, as might be expected, increased its debt issuance from $956 billion in Q4 to $1,446 billion in Q1, both seasonally adjusted annual rates. 

Households, on the other hand, continued paying down debt.  Their home mortgage debt fell at a $390 billion rate and consumer credit at a $39 billion rate.  With some partial offsets in other borrowing, their total credit usage dropped at a $330 billion pace.  This contributed, as today's press reports have noted, to a further gain in their net worth to $54.6 trillion on March 31 from $53.5 trillion at year-end. 

he financial sector extends its contraction.  The debt of commercial banks, finance companies and specialized lenders fell at a $1,336 billion rate in Q1, a fifth consecutive quarterly drop, albeit the smallest.  The largest was $2,293 billion in Q2 2009.  Commercial banks and issuers of asset-backed securities (ABS) had the largest paydowns of their own debt among various financial institutions, and both of those, along with money market funds, also continued to reduce their provision of credit to their own customers.

The rest of the world borrowed modestly in U.S. markets in Q1, $112 billion on balance.  As investors, these foreign participants in U.S. financing provided $663 billion in total funds, more than accounted for by acquisition of Treasury securities:  official holdings increased at a $451 billion annual rate and private foreign investors took on $339 billion worth.  There were obviously liquidations of several other asset positions, especially including commercial paper and private holdings of agency and GSE-backed securities.

The flow-of-funds data are in Haver's FFUNDS database, and the series on Mortgage Equity Withdrawal are in USECON.

Flow of Funds (Y/Y % Chg.) % of Total Outstanding Q1 '10 4Q '09 3Q '09 End of Year
  2008 2007 2006
Total Credit Market Debt Outstanding 100.0% -1.5 -0.5 0.7 5.1 10.3 9.9
Federal Government 15.9% 21.3 22.7 30.1 24.2 4.9 3.9
Households 25.9% -1.8 -1.7 -1.7 0.3 6.7 10.1
Nonfinancial Corporate Business 13.8% 1.0 0.2 0.5 5.6 12.8 8.5
Nonfarm, Noncorporate Business 6.7% -8.3 -7.6 -5.1 5.3 14.2 14.7
Financial Sectors 28.7% -12.0 -8.8 -5.8 5.6 13.4 10.0
Trillions of $
Net Worth: Households & Nonprofit Organizations -- $54.565 $53.502 $52.974 $51,293 $64.358 $64.415
Tangible Assets: Households -- $22.994 $23.061 $23.081 $23.890 $28.037 $29.735
Financial Assets: Households -- $45.542 $44.510 $44.000 $41.668 $50.687 $48.124
Total Liabilities: Households -- $13.970 $14.068 $14.106 $14.265 $14.366 $13.444
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