Consumer Credit Outstanding Partly Fueled by Strengthening Demand

Consumer credit outstanding grew by a seasonally adjusted annual rate of 6.2%, $222.7 billion, in the month of May 2016, 1.7 percentage points faster than the 4.5% rate of growth recorded in April. Consumer credit outstanding now totals $3.624 trillion.

According to the Federal Reserve Board’s Consumer Credit report, the increase in total consumer credit outstanding partly reflected an expansion in the outstanding amount of revolving consumer credit. Revolving credit outstanding, which is largely composed of credit card debt, rose by 3.0%, $28.3 billion, over the month of May. In April, the outstanding amount of revolving credit grew by 1.7%. There is now $953 billion in outstanding revolving credit.

Non-revolving credit was the larger contributor to the expansion in consumer credit outstanding. Non-revolving consumer credit includes auto loans and student loans. According to the report, non-revolving credit outstanding rose by a seasonally adjusted annual rate of 7.3%, $194.4 billion, in May, 1.8 percentage points faster than its growth rate in April, 5.5%. There is now $2.670 trillion in outstanding non-revolving credit.

An earlier post found that the expansion in consumer credit outstanding partly reflected easing lending standards. In contrast, lending standards on commercial and industrial loans, a barometer for business lending, continued to tighten. In similar fashion, demand for consumer credit has strengthened, while demand for C&I loans continues to weaken.

Presentation1

As illustrated by Figure 1 above, demand for auto loans strengthened by 5.9% on net over the first quarter of 2016. The net percentage represents the difference the portion of banks reporting that standards had eased and the proportion reporting that standards had tightened. Similarly, demand on credit cards strengthened by 18.0% on net while demand for other consumer loans strengthened by 12.5% on net. In contrast, demand for business’ C&I loans, which account for 20% of total net loans and leases at depository institutions and are the second largest major loan or lease category behind real estate, weakened by 8.7% over the quarter.

Presentation2

Over the past year, demand for consumer credit has generally strengthened, on net. However, there was an erosion in the pace of strengthening in net demand across all three consumer credit categories over the fourth quarter of 2015. During this three-month period, the pace of strengthening in the demand for credit cards slowed and the pace of net demand for auto loans was unchanged as the share of bank respondents experiencing greater strength in net demand exactly offset the proportion observing weakening demand. Meanwhile, net demand for other consumer loans weakened in the fourth quarter.

By the first quarter of 2016, the pace of demand strengthened across all three consumer loan categories. However, and in contrast to the second and third quarters of 2015, but consistent with the fourth quarter of 2015, net demand for commercial and industrial loans continued to weaken in the first quarter of 2016, albeit at a slightly slower pace from the fourth quarter of 2015.



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