US: Consumer Credit

Fri Oct 06 14:00:00 CDT 2017

Consensus Consensus Range Actual Previous Revised
Consumer Credit - M/M change $16.0B $12.5B to $16.2B $13.1B $18.5B $17.7B

Consumer credit rose a lower-than-expected $13.1 billion in August which masks, however, a sharp gain for revolving credit. This component, which is where credit-card debt is tracked, rose a sizable $5.8 billion in a gain that will renew talk of slackening credit standards among lenders. The gain for the nonrevolving component, where auto financing and also student loans are tracked, is an undersized $7.3 billion and explains the weakness in the headline. But this report is not about weakness but about strength, at least strength for consumer spending.

Market Consensus Before Announcement
Consumer credit has been on the rise this year though revolving credit, which is where credit cards are tracked, did slow in July. Nonrevolving credit, reflecting growth in vehicle financing and student loans, has been very strong. Forecasters are calling for a $16.0 billion rise in August vs $18.5 billion in July.

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.