The Surest Sign Yet That The Consumer Is Coming Back With A Vengeance

Nomura’s Ellen Zentner takes a look at the latest revolving consumer credit numbers, which we highlighted this week, and puts them into context with retail sales and consumer confidence.

The upturn in credit card usage reinforces evidence of greater confidence among consumers. Data through December 2011 show that the Conference Board’s index of consumer confidence has risen since its February 2009 trough by roughly 39 points, though the path of improvement has been fraught with ups and downs. We find that over the past 20 years the correlation between consumer confidence and year-on-year growth in revolving credit is highest when confidence is given a six-month lead-time.

We suspect that an improving labour market has underpinned an impressive 14.3 point jump in consumer confidence since October. Although headline retail sales figures for November and December seem somewhat disappointing, the underlying details show strength in several of the most discretionary items. The January Beige Book, based on data collected prior to 30 December, reported that most Federal Reserve Districts had “significant gains in holiday retail sales” compared with 2010.

Increased use of credit cards in the first month of the holiday season reinforces the evidence of a brighter consumer mood. It also suggests that borrowing terms may be improving. The nascent recovery in consumer credit growth represents another encouraging sign that the US economy should be able to withstand the threat posed by Europe’s distressed financial markets.