Consumer Credit Grows

Data released by the Federal Reserve Board indicates that consumer credit outstanding expanded over the month of July. On a seasonally adjusted annual rate basis, total consumer credit, which excludes housing related credit such as mortgages and home equity lines of credit, rose by 10%, $312 billion, over the month. Non-revolving credit outstanding, largely composed of auto loans and student loans increased by 11%, $248 billion while revolving credit, mostly made up of consumer credit cards debt, climbed 7% or $64 billion. This is the 35th consecutive monthly increase in consumer credit. Over this 2 year and 11 month period, consumer credit outstanding has risen by 19%.

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The increase in consumer credit outstanding may partly reflect consumers’ improving expectation for future economic conditions. According to the Conference Board, consumers’ expectations were largely responsible for the improvement in overall confidence that was recorded over the month of July. Figure 2 illustrates that the underlying components used to measure consumers’ expectations in the Consumer Confidence Index all recorded net increases over the month. A net share of 8% of surveyed consumers expected better business conditions in the next six months, while a net share of 7% of surveyed respondents expected their income to increase. Meanwhile, on net, 2% of consumers expected more jobs in the future.

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At the same time, lending standards on consumer installment loans have eased, and, more importantly, lending standards on prime consumer installment products are closer to the midpoint of the range of lending standards recorded over the roughly 10-year period beginning in 2005. However, lending standards on housing-related debt products are still tight.

According to data from the Federal Reserve Board shown in Figure 3, a net share of bank respondents have reported that lending standards on consumer installment loans extended by their bank have eased. The net share is calculated as the difference between the share of respondents answering that lending standards at their bank have eased and the proportion of respondents reporting that lending standards at their bank have tightened. Figure 3 shows that the net share of bank respondents reporting that lending standards on credit cards had eased was 13% while a net share of 5% of bank officers reported that auto lending standards had eased. On net, 7% of respondents reported that their bank’s lending standards on other consumer loan products had eased.

Moreover, according to that earlier post, 7% of bank respondents on net reported that lending standards on auto loans were easier than the midpoint of the range of standards recorded since 2005, while a net share of 2% and a net share of 3% of bank respondents reported that lending standards on prime credit card loans and other consumer loans respectively were tighter. Meanwhile, a net share of 22% of respondents reported still tight lending standards on purchase mortgages guaranteed by either the Federal Housing Finance Agency or the Veteran’s Administration, while 27% of bank officers on net reported that lending standards on home equity lines of credit were still tight. The net share of bank officers reporting still tight lending standards is even greater for other purchase mortgage products.

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