U.S. Consumer Credit OutstandingDrops; Earlier Declines Shaved

The Federal Reserve reported yesterday that consumer credit outstanding fell by $3.5B m/m during October. While it was the thirteenth monthly drop since summer 2008, earlier declines were trimmed. And though consumer credit outstanding as a percentage of disposable income has fallen to 22.4% from its 2005 high of 24.7%, these rates are up from the low near 16% in the early-1990s. 

The recent improvement in consumer sentiment may be reducing the aversion to credit. Consumers during October actually raised their level of non-revolving credit for the third month this year. Declines earlier in 2009 were revised sharply shallower and the recent three-month change of +0.5% compares to this year's deepest of -0.8% during April. Usage of non-revolving credit (autos & other consumer durables), which accounts for nearly two-thirds of the total, fell $6.9B after an $8.7B September decline that was deeper than reported initially, as were earlier declines. The 8.5% y/y decline was by far a record.

Savings institutions actually raised their level of lending during the last three months (-3.5% y/y).  Commercial bank loans were stable, though still down a sharp 3.6% y/y. Loans from credit unions also increased slightly since the spring (1.9% y/y) and the Federal government & Sallie Mae raised their level of credit outstanding 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.

Rescuing asset-backed securities markets from the Federal Reserve Bank of Chicago can be found here. 

After improving this spring, small business' optimism has leveled off. The National Federation of Independent Business (NFIB) reported their small business optimism index during November dipped 0.9% to 88.3 after two months of slight increase. During the last ten years, there has been an 85% correlation between the level of the NFIB index and the two-quarter change in real GDP.

The percentage of small businesses expecting the economy to improve fell sharply to 3 from the May high of 12. The percentage which thought that now was a good time to expand the business also leveled off at 8 though it has sharply improved from this winter.

Hiring intentions have responded negatively to the stall in overall sentiment. The percentage of firms planning to raise employment remained in a net-layoff region, although planned layoffs have eased sharply from a March low. The percentage of firms with one or more job openings held at just 8% during December, the lowest level since 1982. During the last ten years there has been a 74% correlation between the NFIB employment percentage and the six-month change in nonfarm payrolls. Also stable in the negative region was the percentage expecting credit conditions to ease.

On the pricing front, conditions eased. The percentage of firms actually raising prices held at a depressed -17% (indicating deflation) and remained  near the record low. During the last ten years there has been a 60% correlation between the six-month change in the producer price index and the level of the NFIB price index. The percentage of firms planning to raise prices slipped slightly to a net 4 though that remained up from the March low of zero. Worker compensation improved modestly.

The largest, single most important problems seen by business were poor sales (33%), taxes (20%, near its highest level since 2007), government requirements (13%), insurance cost & availability (8%), competition from large businesses (6%) and inflation (3%).

About 24 million small businesses exist in the United States. Small business creates 80% of all new jobs in America and the NFIB figures can be found in Haver's SURVEYS database. 

German Industrial Production declined almost 2% to 95.7 (2005=100) in October, from 97.5 in September.  Although expectations had been for a small rise, yesterday's sobering report on new orders should have dampened expectations. 

Among the Main Industrial Groups, the biggest declines were in the production of investment goods, 3.55%, and in that of energy, 3.40%.  Production of consumer goods also declined but to a lesser extent, 1.90%.  Production of intermediate goods was actually up, 0.61%.  As reported yesterday, domestic orders for intermediate goods were up sharply.  The first chart shows the indexes for the four Main Industrial Groups.

More specific information on production is available in the detailed breakdown of production.  Production of machinery and equipment, nec, declined 7.56% from September to October, production of coke and refined petrol products was down 3.86% and motor vehicle production was down 3.27%.  Surprisingly, some of the largest declines were in food, beverages and tobacco, 3.59%, and textiles, 5.04%.  Production of computers and pharmaceuticals were notable exceptions to the October decline.  Computers, electronic and optical products and electric equipment rose 2.25% and basic pharmaceutical products and preparations rose 2.35%.  Total Industrial Production, together with production of machinery and equipment, nec, motor vehicles and pharmaceutical products are shown in the second chart.

Industrial production rarely proceeds in an smooth trend.  The October decline may be only a slight interruption like the July decline that was quickly reversed.  A continuation of the decline in the Euro that started last Thursday would do much to stimulate German production.