Consumers Back Off on Auto and Student Loans

Total consumer credit outstanding (all non-mortgage debt) increased by 5.4% ($14.7 billion) over the month in December to $3.3 trillion (seasonally adjusted annualized rate). November consumer credit was revised down from a gain of $14.1 billion to $13.5 billion. Over the 12 months ending in December, total consumer credit was up by 6.9%.

Non-revolving debt, which is primarily composed of credit for new automobiles and student loans, rose by 4.5% (or $8.9 billion), the slowest rate of growth almost three years. The average for this category over the previous 11 months was $15.9 billion so the December figures was somewhat below trend.

Revolving debt (mainly credit cards) increased by 7.9% (or $4.8 billion) and was the fastest rate of growth in 8 months. In November, revolving debt contracted by 1.3%.

The acceleration of revolving debt relative to non-revolving debt in December stands in stark contrast to the pattern that has dominated consumer credit growth since the end of the recession. Overall, demand for credit to finance auto loans and student loans has increased at a much faster pace than credit card balances. The level of revolving debt is still 2.5% below where it was in January 2010, whereas the level of non-revolving debt has  increased by 48.5%. As of December, non-revolving debt comprised over 73% of all non-mortgage consumer debt.

Looking ahead, strong job gains, rising wages and low inflation should boost consumer confidence and translate into greater buying power. The big question is whether or not consumers will choose to exercise that new found power. One indication that consumers are becoming more comfortable with increasing debt is the rising debt-to-disposable income ratio. In December, that ratio stood at 25.1%, above the long-run average ratio (since 1995) of 22.9%.  

Source:  http://www.federalreserve.gov/releases/g19/current/default.htm