Wednesday, December 10, 2008

Consumer Credit


The Lehmann Letter ©

Today the nation closely followed news of the auto-industry rescue package.

Last Friday, December 5th, the Federal Reserve released its consumer-credit report ( These data have a direct bearing on the auto industry’s problems because consumers borrow heavily to finance motor-vehicle purchases.

You can see from the chart below that consumer credit has grown by about $100 billion a month for the last five years. But the most recent entry spiked downward. Was this an aberration?

Consumer Credit

(Click on chart to enlarge)

Recessions shaded

It’s too early to tell.

The Fed publishes historical data ( ) that lets you calculate recent changes. Just subtract one month from the next and multiply by 12 to estimate an annual rate.

Here are the most recent figures.

July = +$88.0 billion
Aug = -$77.1 billion
Sep = +$80.8 billion
Oct = -$42.4 billion

You can see that September bounced back from August’s negative reading. Then October slipped below zero again. Over the last few months the reading’s average has been barely positive, not close to the $100 billion average of the last five years.

The credit crisis explains part of the decline. Borrowers have increasing difficulty qualifying for auto loans. But that’s not the whole story. Households are less likely to borrow and spend when they feel pessimistic. And recently consumer confidence has fallen dramatically. That may also be responsible for the recent slippage in these numbers.

Stay tuned to this statistic to see whether or not it continues to provide a signal of economic weakness.

(The chart was taken from [Click on Seminars and then Charts.] Go there for additional charts on the economy and a list of economic indicators.)

© 2008 Michael B. Lehmann

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