Consumer Credit in the US both booms and falls…..

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by Shaun Richards

Last night brought something intriguing from the US economy so let us take a look at the state of play in its credit market.

In February, consumer credit increased at a seasonally adjusted annual rate of 7.9 percent. Revolving credit increased at an annual rate of 10.1 percent, while nonrevolving credit increased at an annual rate
of 7.3 percent.

So we have a number that looks like it belongs to the good old days pre pandemic although as Michael Goodwell points out there were not so many of these even then.

Total US consumer credit for February rose by $27.57 billion versus $2.8 billion estimate.

Highest gain since $29.225 billion in November 2017.

In terms of the two categories then what is called  non revolving credit grew by  US $19.5 billion and in case you are wondering what these are?

Includes motor vehicle loans and all other loans not included in revolving credit, such as loans for mobile homes, education, boats, trailers, or vacations.

So mostly car loans and student loans. According to the Federal Reserve a car loan costs around 5% and the average size is around US $34,000. Revolving credit grew by US $8.1 billion presumably because it is more expensive as for example credit card debt costs 15-16%.

So US Consumer Credit is now US $4205 billion

What about Retail Sales?

The numbers above do not fit well with the numbers from the Census Bureau.

Advance estimates of U.S. retail and food services sales for February 2021, adjusted for seasonal variation
and holiday and trading-day differences, but not for price changes, were $561.7 billion, a decrease of 3.0
percent (±0.5 percent) from the previous month, and 6.3 percent (±0.7 percent) above February 2020.

The general theme of a US economic recovery works with the annual comparison. But the monthly data does not because we see that people have borrowed to spend less. Maybe we will see a rise next month but in general you borrow to buy a car as you buy it.

Seasonal Adjustment

There is a possible swerve here because if we move to the actual numbers for US Consumer Credit they fell by US $3.8 billion. So the growth reported in the headlines relies on the seasonal adjustment at a time when very little is normal.

Federal Reserve Minutes

These were typical of the times and let us start with some good news.

The U.S. economic projection prepared by the staff for
the March FOMC meeting was considerably stronger
than the January forecast.

Part of this was driven by the President Biden fiscal stimulus plan.

Moreover, the size of the ARP enacted in March was considerably larger than what the staff had assumed in the January projection.

I think that the fiscal stimulus led to this which is the opposite of what you might expect after an upgrade to economic expectations. The emphasis is mine.

In addition, members agreed that it would be appropriate for the Federal Reserve to continue to increase its
holdings of Treasury securities by at least $80 billion per
month and agency mortgage-backed securities by at least
$40 billion per month until substantial further progress had been made toward the Committee’s maximumemployment and price-stability goals.

It is kind of them to confirm my long-running theme that policy easing is for now and that policy tightening is for the distant future and sometimes the far distant future. But then they switch to being misleading.

They judged that these asset purchases would help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses

The main flow of support is to the US government yet it apparently does not merit a mention! It does merit one in another form elsewhere.

The Treasury yield curve steepened over the intermeeting period, with 5- and 10-year yields rising markedly

If we return to the economic situation we find that the Fed has rather fumbled the ball. It indulged in some Open Mouth Operations in January suggesting it would reduce or taper its bond purchases in 2021. Now when the economic situation is ” considerably stronger” in its own words it is ploughing on. It is plainly afraid of what might happen to US bond yields should it stop buying. Also we get phases when the US Treasury market seems to be struggling which will worry the Fed.

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According to President Biden here are the details of his plan.

Biden will make a $2 trillion accelerated investment, with a plan to deploy those resources over his first term, setting us on an irreversible course to meet the ambitious climate progress that science demands.

There are some interesting details here.

Auto Industry: Create 1 million new jobs in the American auto industry, domestic auto supply chains, and auto infrastructure, from parts to materials to electric vehicle charging stations,

The US has a large auto industry but if you are going to win the new “green” era can you also do this?

And he’ll ensure those workers have good-paying jobs with a choice to join a union. Between 1979 and 2018, American workers have increased their productivity by 70%, while their real wages have only grown by 12% — in large part due to the decline in union density. Biden will reverse this trend, by ensuring that auto workers have jobs with strong labor standards

There are some interesting wages numbers there which lead into an issue I look at regularly. Can we do anything about the real wages issue? If we stick with the US it does have some power which we see often deployed by the Department of Defense buying aircraft from say Boeing giving it not only business but also economies of scale. But will consumers be willing to pay more for US cars when there are cheaper foreign choices? It is not clear to me that there is a “magic wand” here. You can of course become protectionist to help this but if others respond in kind you lose exports.

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Also everyone seems to be claiming that they will be the leaders in battery technology and what they call clean energy….

As a final point the bit on railways gives food for thought. This is partly due to where I live. You see Battersea is about to get the London Tube with two new stations where test trains are now being run. The irony is that after a couple of decades of dithering will they have arrived just in time for lower demand for rail travel?


The mood music here is good as the IMF has recently added to.

The United States is projected to return to end-of-2019 activity levels in the first half of 2021

They have revised expected economic growth up to 6.4% for 2021. Care is needed in terms of the detail as they have a poor track record but the theme here is of a US economy surging forwards. But there are problems as we look around because the US Federal Reserve is pumping up house prices at an annual rate of around 10% meaning we get policies like this.

Housing: Spur the construction of 1.5 million sustainable homes and housing units.

Maybe that will help at the margin.

Still I wish President Biden well in his efforts to raise real wages. After all people will need them to pay for the energy prices his policies will create.

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