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Weekly Review: The End of Consumer Deleveraging?

By: Steven Hansen
Posted: 6/21/2013 12:52:00 AM
Referenced Stocks:

I was intrigued by the following graphic in a post on The Big Picture blog.

And the question which accompanied this graphic:

Is the era of consumer deleveraging, which began just prior to the start of the reception, at an end?

A inherent problem with this chart is that if one lowers interest rates (aka ZIRP et al), the cost of loan payments decline – and it has nothing to do with deleveraging. But this does not negate the question, or the relevance of the chart to consumer debt.

Another part of the problem in the world where data seems to be omnipresent – is that some of the vital pieces to perform a detailed analysis are missing.  There are even questions on this TDSP data series from the Federal Reserve (which is the basis of the above graph).

The limitations of current sources of data make the calculation of the ratio especially difficult.   The ideal data set for such a calculation would have the required payments on every loan held by every household in the United States.   Such a data set is not available, and thus the calculated series is only a rough approximation of the current debt service ratio faced by households.

Whether the consumer deleveraging cycle is over is something I continue to ponder, and a good answer alludes me.

As stated earlier, median data does not exist for consumer credit in real time. All an analyst can do is use data totals and suggest what answer is to the average consumer. Even on a per capita basis (which includes the 0.1%),  there is no proof the consumer deleveraging cycle has ended.

But because of the unique situation with mortgages being included in the above graphic, when one only looks at revolving (credit cards) and non-revolving credit (automobile loans, student loans)- it is clear the consumer debt trough has passed. [Note: even removing student loans from the chart below - does not change the fact that consumer debt per capita is growing.]

Is the consumer deleveraging over? It depends on how you look at it.

Other Economic News this Week:

The Econintersect economic forecast for June 2012 again declined marginally, and remains under a zone which would indicate the economy is about to grow normally. The concern is that consumers are spending a historically high amount of their income.

The ECRI WLI growth index value has been weakly in positive territory for over four months – but in a noticeable improvement trend. The index is indicating the economy six month from today will be slightly better than it is today.

Current ECRI WLI Growth Index


Initial unemployment claims degraded from 334,000 (reported last week) to 354,000 this week. Historically, claims exceeding 400,000 per week usually occur when employment gains are less than the workforce growth, resulting in an increasing unemployment rate.

The real gauge – the 4 week moving average – worsened from 345,250 (reported last week) to 348,250. Because of the noise (week-to-week movements from abnormal events AND the backward revisions to previous weeks releases), the 4-week average remains the reliable gauge.

Weekly Initial Unemployment Claims – 4 Week Average – Seasonally Adjusted – 2011 (red line), 2012 (green line), 2013 (blue line)


Bankruptcies this Week: Orchard Supply Hardware Stores, OnCure Holdings

Data released this week which contained economically intuitive components (forward looking) were:

All other data released this week either does not have enough historical correlation to the economy to be considered intuitive, or is simply a coincident indicator to the economy.

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