US: Consumer Credit

Fri Feb 06 14:00:00 CST 2015

Consensus Consensus Range Actual Previous Revised
Consumer Credit - M/M change $15.2B $12.8B to $22.0B $14.8B $14.1B $13.5B

Consumers were out in force with their credit cards and during the holiday season at that! Consumer credit rose $14.8 billion in December but the real headline is in the revolving credit component which jumped $5.8 billion. This is a very big jump for this component which typically shows not much of a monthly change at all. Non-revolving credit, which typically shows strong gains on vehicle financing and student loans, rose $9.0 billion. The thunder of today's employment report is echoed by the revolving credit component of this report as the consumer is, more clearly, the driving force for the economy.

Market Consensus Before Announcement
Consumer credit outstanding rose $14.1 billion in November though, once again, revolving credit was weak. The revolving credit component, where credit card debt is tracked, fell $0.9 billion in the month for the second contraction of the last four months. In contrast, the non-revolving credit component, as usual, posted a strong gain, up $15.0 billion and once again reflecting demand for auto loans and student loans. But revolving credit is the weak link in the consumer credit.

The dollar value of consumer installment credit outstanding. Changes in consumer credit indicate the state of consumer finances and portend future spending patterns.

Growth in consumer credit can hold positive or negative implications for the economy and markets. Economic activity is stimulated when consumers borrow within their means to buy cars and other major purchases. On the other hand, if consumers pile up too much debt relative to their income levels, they may have to stop spending on new goods and services just to pay off old debts. That could put a big dent in economic growth.

The demand for credit also has a direct bearing on interest rates. If the demand to borrow money exceeds the supply of willing lenders, interest rates rise. If credit demand falls and many willing lenders are fighting for customers, they may offer lower interest rates to attract business.

Financial market players focus less attention on this indicator because it is reported with a long lag relative to other consumer information. Long term investors who do pay attention to this report will have a greater understanding of consumer spending ability. This will give them a lead on investment alternatives. Also, during times of distress in credit markets, consumer credit can give an idea about how willing banks are to lend.