US: Consumer Credit

Wed Jul 08 14:00:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
Consumer Credit - M/M change $18.5B $17.8B to $25.0B $16.1B $20.5B $21.4B

The consumer is showing some life. Consumer borrowing rose $16.1 billion in May following an upward revised $21.4 billion in April. Key to this report is the component for revolving credit which is where credit cards are tracked. Revolving credit rose $1.6 billion in May, a moderate gain that follows, however, two very strong gains in April and March. Non-revolving credit, inflated by the student loan subcomponent, rose $14.5 billion in May. Non-revolving gains, however, do reflect gains for vehicle financing.

Market Consensus Before Announcement
The revolving component of the consumer credit report, where credit cards are tracked, has been showing some life recently. May was a strong month for retail sales which may give a third straight lift to this component. May was also a very strong month for vehicle sales which should give yet another lift to the report's non-revolving component.

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.