Consumer Credit Expands


Data released by the Federal Reserve Board shows that the amount of consumer credit outstanding rose over the month of September 2014. According to the release, consumer credit outstanding grew at a seasonally adjusted annual rate of 5.9% ($191.1 billion). Revolving credit outstanding, which is largely made up of credit card debt, increased by 2.0% ($17.3 billion), while non-revolving credit outstanding, auto loans and student loans, rose by 7.3% ($173.8 billion).

Over the course of the 3rd quarter of 2014, consumer credit outstanding expanded at a seasonally adjusted annual rate of 6.6% ($211.0 billion). Both revolving and non-revolving credit contributed to the increase in the headline measure. However, non-revolving credit outstanding grew faster over the quarter. Non-revolving credit outstanding grew by 7.9% ($184.5 billion) and revolving credit outstanding rose by 3.0% over the third quarter of 2014 ($26.5 billion).

The expansion in consumer credit outstanding has coincided with an improving labor market. A previous post illustrated that the rise in consumer credit outstanding is not worrisome because consumers’ debt service, the amount consumer credit outstanding relative to disposable personal income, remains low. During periods of increasing consumer credit, sustaining a low consumer debt service ratio indicates that income growth is keeping pace with the rate of expansion in consumer credit.

In addition to rising incomes, employment has also been expanding. As the figure below illustrates, year-over-year employment growth is correlated with year-over-year growth in consumer credit outstanding. Over the previous 6 decades, periods of higher employment growth have generally coincided with higher rates of consumer credit expansion and periods of lower employment growth or even a year-over-year declines in employment have generally coincided with slower growth or outright declines in consumer credit outstanding. During the most recent recession, both the number of jobs and the amount of consumer credit outstanding contracted severely. However, in recent years, both the labor market and consumer credit outstanding are growing.


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