Total consumer credit outstanding expanded by $5 billion in January after contracting 15 of the previous 17 months. Hopefully this trend will continue as 60% of the US economy relies on consumers.
Consumer credit outstanding includes revolving and non revolving credit. Revolving credit is mostly credit card debt, and non revolving credit includes loans for items such as autos and boats. Even with the slight increase in January, total consumer credit (after adjusting for inflation) has contracted roughly 6 percent since the recession began in December 2007. This number might seem like a huge contraction but compared with three of the past four recessions, it actually looks rather typical, if not mild. Consumer credit contracted 9 percent in the 1973–75 recession, 11 percent in the 1980–82 recessions, and 8 percent in the 1990–91 recession.
Then, just when you think this recession is just like the others, in comes a curve ball - the report shows that if we the current recession is separated into revolving and non revolving credit, the relationship to past recessions changes. Typically in a recession, non revolving credit shrinks considerably while revolving credit shrinks little if at all. The trend so far in this recession has been the exact opposite; non revolving credit essentially has remained unchanged while revolving credit has shrunk 11 percent.
It is interesting to note that the surprise blip “up” in the most recent consumer credit report came entirely from non-revolving debt. Credit card debt continued to contract. Most likely this change in debt is due to the fact that interest rates for auto and boat loans are exceptionally low, while interest rates for credit cards are typically much higher.
