Consumer Credit Balances, Debt Service Ratio Climb


According to the Federal Reserve Board’s G.19 Consumer Credit report, the total amount of consumer credit outstanding rose by 5.2 percent (SAAR) over the 1st quarter of 2017, 2.4 percentage points less than the 6.6 percent rate of growth in the 4th quarter of 2016. Consumer credit outstanding now totals $3.8 trillion. After declining on a quarterly basis over 2009 and the first half of 2010, consumer credit outstanding has now risen quarter-over-quarter for 6 years (25 quarters). Over this period, consumer credit balances have expanded by 50%.

The recent growth in consumer credit coincides with an uptick in the consumer debt service ratio (DSR). According to the Federal Reserve Board, the consumer DSR is the total quarterly scheduled consumer debt payments divided by total quarterly disposable personal income. Consumer debt is taken from the Federal Reserve’s G.19 Consumer Credit statistical release while disposable income is obtained from the National Income and Product Accounts.

As illustrated by the figure above, consumer credit has expanded by 29 percent, from $2.9 trillion to $3.8 trillion between the 4th quarter of 2012 and the 4th quarter of 2016. Over this same period, the consumer DSR has grown from 4.9 percent to 5.6 percent. In contrast, between the third quarter of 2001 and the second quarter of 2009, the growth in consumer credit lagged household income growth as the uninterrupted expansion in consumer credit coincided with a decline in the consumer DSR. Despite the recent increase, the current consumer DSR remains below its 2001 peak level of 6.7 percent.

The recent performance of the consumer DSR differs from the latest trend in the mortgage DSR. The outstanding amount of mortgage debt is taken from the Federal Reserve Board’s Z.1 Financial Accounts of the United States. According to the second figure above, the consumer DSR exceeds the mortgage DSR and the gap between them continues to widen as the rise in the consumer DSR beginning in 2013 coincides with a continued decline in the mortgage DSR.

The two series last crossed in 2004 when the consumer DSR, which began to fall in 2002, continued its declining trend between 2004 and 2012. Over the 2004 to 2008 period, the mortgage DSR exceeded the consumer DSR as the falling consumer DSR contrasted with a rising mortgage DSR. Between 2008 and 2012 both the consumer DSR and the mortgage DSR were falling, but the mortgage DSR fell faster closing the gap between the two series.

According to the Federal Reserve Board, the consumer DSR and the mortgage DSR sum to the overall DSR. The figure above illustrates that, since 2013, the overall DSR is flat at 10.0 percent as the growth in the consumer DSR since 2013 is offsetting the continued decline in the mortgage DSR. After peaking at 13.2 percent in the 2007, the overall DSR fell to 9.9 percent by the end of 2012.

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