U.S. Consumer Credit Becomes Third Rail Of U.S. Economy

· 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.

By Tom Moeller

Consumer Credit Outstanding (m/m Chg, SAAR)

Y/Y

Total

$-21.8B

 $-5.7B