Despite the Recent Increase, Credit Card Debt Outstanding Remains On A Downward Path

According to the Federal Reserve Board, consumer credit outstanding increased at a seasonally adjusted annual rate of 6.2% in October, an acceleration of 0.8 percentage points over September’s growth rate. Unlike September, the October increase in consumer credit outstanding, which excludes loans secured by real estate, reflects growth in both revolving and non-revolving credit. In October, revolving credit expanded by 4.7%, reversing September’s 3.1% contraction. Non-revolving credit increased by 6.9%. However, the October growth rate in non-revolving credit outstanding decelerated from the rates of growth exhibited in August, 9.0%, and September, 9.2%.

As the chart below illustrates, the recent increase in the amount of consumer credit outstanding reflects an expansion in non-revolving credit outstanding. Meanwhile, revolving credit outstanding has increased modestly. Between January 2000 and July 2008, when the amount of revolving credit outstanding reached its peak, revolving credit outstanding rose by 67.2%. Over this same period, the amount of non-revolving credit outstanding more than doubled, growing by 105.1%.

Between July 2008 and April 2011, larger non-revolving credit outstanding rose by 10.8%, which included a shift of consumer credit from pools of securitized assets to other categories largely due to financial institutions’ implementation of the FAS 166/167 accounting rules, but this increase was offset by an 18.0% decline in the smaller revolving credit outstanding. As a result, total consumer credit outstanding fell by 0.7%. Since April 2011, total consumer credit outstanding has expanded by 15.0%. Non-revolving credit outstanding has increased by 26.8% while revolving credit outstanding has grown by only 1.8%.

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Changes in the amount of consumer credit outstanding largely reflect changes in auto, student, and credit card debt outstanding. According to the Federal Reserve Board, credit card loans account for most of revolving consumer credit, but other types, such as prearranged overdraft plans are also included. Meanwhile, student and auto loans account for the bulk of non- revolving credit. As the chart below illustrates, while the amount outstanding for auto and student loans has seen a sustained increase since the third quarter of 2010, credit card debt outstanding has continued its descent.

Between the first quarter of 2003 and the fourth quarter of 2008, the 27.4% increase in consumer credit was broadly distributed among its major underlying categories. During this period, auto loans rose by 23.4% while credit card debt expanded by 25.9%. Student loans surged by 165.6%, although it started from a comparably lower level. Between the fourth quarter of 2008 and the third quarter of 2010, consumer credit fell by 5.9%. Auto and credit card debt outstanding contracted by 10.2% and 15.6% respectively, while student loans debt continues its ascent, increasing by 21.7% over this period.

Since the third quarter of 2010, consumer credit outstanding has expanded. Part of this increase reflects an accounting change. In addition to this accounting change, the principal categories of non-revolving debt have grown. Over the last 9 quarters, auto loans outstanding have increased by 8.2% and student loans have grown by 22.8%. However, credit card debt outstanding experienced a contraction of 8.0%. The shrinking of credit card debt outstanding, which has narrowed by 29.1% since the fourth quarter of 2008 and is now below its 2003 level, may reflect changes in household spending patterns.

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  1. National Data Suggest Household Deleveraging Of Credit Card Debt « Eye on Housing
  2. Revolving Credit Growth Moderate, but Underlying Dynamics Showing Signs of Recovery « Eye on Housing

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