What The Massive Surge In Consumer Credit Means

The latest consumer credit release showed a big increase in consumer borrowing. The Fed says:

“Consumer credit increased at an annual rate of 8 per cent in May. Revolving credit increased at an annual rate of 11-1/4 per cent, while nonrevolving credit increased at an annual rate of 6-1/2 per cent.”

The key points for me:

  • I like to calculate a trailing quarterly year over year rate to smooth out this data.  We’re at 4.3% growth here.
  • Revolving credit was up 11.2B in May.
  • This is more evidence that the consumer is beginning to borrow again as the effect of the balance sheet recession is reduced.
  • We still require large budget deficits to sustain positive economic growth as low interest income and continued de-leveraging will require support from the government.
  • The biggest risk to the economy remains a sharp decline in the size of the deficit putting increasing pressure on consumers to borrow or de-lever while cutting back on spending.  The deficit supports spending while balance sheets heal.

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