The dollar value of consumer installment credit outstanding. Changes in consumer credit indicate the state of consumer finances and portend future spending patterns. Why Investors Care
| Released on 10/7/08 For Aug 2008 | ||||||||||||
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Highlights
The credit crunch was already beginning to hit consumers in August. Consumer credit plunged $7.9 billion for the first month-to-month decline in nearly 11 years. The decline was centered in non-revolving credit which fell $7.3 billion. With auto sales weakening, there's little reason to expect gains in this category for September. Revolving credit fell $0.6 billion. The great risk right now is that the credit crunch will spread to the consumer's ability to finance household expenditures. Efforts around the world to increase savings guarantees are an effort to stem this risk.
Consumer credit growth slowed sharply in July to a $4.5 billion pace for the smallest rise of the year. The 2.1 percent annualized gain is also the lowest of the year. Growth in revolving credit during July was below trend at $3.9 billion while growth in non-revolving credit slowed to $0.6 billion to offset an $8.8 billion jump in June. The recent rise in savings, tied to tax rebates, may have limited the need for consumers to borrow temporarily. But the slower growth may reflect credit card limits being lowered by issuers due to the credit crunch and increased delinquencies. Markets need to think about the possibility that growth is slow not because consumers do not want to spend but because consumers do not have the same credit to access and this could slow economic growth.
Consumer credit Consensus Forecast for August 08: +$5.5 billion
Range: $0 billion to +$10.0 billion
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The debt-to-income ratio shows how indebted consumers are relative to income. A rising ratio indicates that consumers are taking on greater debt burdens with respect to income growth. In a growing economy, this may not be dangerous. However, indebtedness could quickly become a problem if income and employment conditions turn around. The yearly change in debt outstanding shows yearly trends in debt growth and tends to be less volatile than the monthly change. |
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