Non-Revolving Debt Drives Consumer Credit Growth

Preliminary consumer credit data for October 2018 released by the Federal Reserve Board’s G.19 Consumer Credit report indicate an increase in outstanding credit of about 7.75% (SAAR) during the third quarter. Revolving credit increased at an annual rate of 10.75%, while nonrevolving credit increased at an annual rate of 6.75%. Revolving credit plans, which is largely composed of credit card debt, may be unsecured or secured by collateral and allow a consumer to borrow up to a prearranged limit and repay the debt in one or more installments. Nonrevolving credit, which encompasses auto and student loans, is closed-end credit extended to consumers that is repaid on a prearranged repayment schedule and may be secured or unsecured.

Throughout 2018 up until October, total consumer credit (seasonally adjusted) increased. The level of outstanding credit stands at about $3.96 trillion. Furthermore, the ratio of revolving to nonrevolving credit for October 2018 of 26:74 is nearly identical to that which existed at the beginning of the year.

The breakdown of the seasonally adjusted flows of consumer credit paints a more intricate picture of the recent debt trends. Nonrevolving debt was at its highest in 2015, in terms of monthly seasonally adjusted flows, and has ever since been trending downwards. Revolving debt, while not on a similar downward trajectory, had been exhibiting low to negative flows (substantial reductions in revolving debt extended), a tendency that had not been seen since 2013. The substantial decline in the revolving credit flows means that more debt is being accumulated by consumers purchasing more on credit than consumers paying off their credit balances or opening new lines of credit. In October, both revolving and nonrevolving debt received substantial inflows unseen since last year.

The G.19 data show that nonrevolving debt has increased steadily over the years to an outstanding credit amount of $2.9 trillion. Revolving debt, however, has been more volatile. The two principal components of nonrevolving debt, student and auto loans, have been trending upwards. As it currently stands, the sum of student and auto loans make up 92.41% of nonrevolving debt outstanding, by dollar amount. According to the Federal Reserve Board of New York’s Consumer Credit Panel / Equifax Quarterly Report on Household Debt and Credit, Q3 2018 credit card balances were $0.84 trillion. Since the third quarter of 2017, the level of credit card debt has been above $0.80 trillion. Credit card debt peaked at $0.86 trillion in the last quarter of 2008.

 



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