While many celebrated the record high US household wealth in the latest data from The Fed, what most missed was a record $1.0 trillion of credit card/revolving loans, a record $1.3 trillion of auto loans, and a record $1.5 trillion of student loans.
As we previously noted, among these, credit card and auto loans, in particular, have been experiencing accelerating delinquencies, but the very gradual increase in aggregated Net Charge-Offs has allayed any economist concerns about the state of the US consumer. But, a modest scratch below the surface, and a surprising discovery emerges.
While the larger U.S. banks that dominate credit card issuance have focused on prime and super prime consumers post the Great Financial Crisis (GFC), and have enjoyed a prolonged period of low charge off rates concurrent with the Fed’s almost decade long ZIRP (Read more detailed breakdown here.), the charge-off rates among the nation’s smaller banks, those outside the Top 100, have seen the charge-off rates soar.
And now, based on this month’s consumer credit data from the Fed, which saw an unexpectedly small increase in consumer credit of only $11.5BN, below the $15.2BN expected, and down from $13.6BN last month, it appears this reality is starting to hit home, as March consumer credit rose at the slowest pace since September…
.. as outstanding credit card borrowings unexpectedly declined by $2.6BN, the most since the end of 2012, after a drop of just over $500MM last month.
As the chart below shows, the two consecutive months of credit card deleveraging means that the until recently relentless increase in revolving credit appears to have again hit a plateau. The last time this happened? August of 2008 (the sharp move in December 2015 was simply a data revision).
While it is painfully obvious, as Bloomberg adds, “the 0.9 percent annualized decline in first-quarter credit-card debt outstanding shows a waning appetite for borrowing after a 10.3 percent surge in the final three months of 2017.”
To summarize the results:
- Total credit increased $11.6b (less than the expected $15.2b).
- Revolving credit outstanding dropped $2.6b MoM, after a $515m decrease in Feb.
- Non-revolving debt outstanding climbed $14.2b for a second month
The results are consistent with first-quarter data that showed household spending cooled following a strong run of gains. All that dis-saving (and credit-card-debt engorgement) managed to spike consumer confidence to near record highs…
It also confirms that with the US personal savings level once again near all time lows, and with households no deleveraging on their credit cards, the second quarter is about to get very ugly for the economy which is 70% driven by consumer spending.
There was a silver lining: non-revolving credit – auto and student loans – rose by a solid $14.2BN as household continued to just charge their assorted college-linked purchases not to mention car purchases. In fact, as the latest Fed data shows, both auto and student loans hit a new all time high of $1.52 trillion and $1.118 trillion, respectively.
And so, Americans may be going broke, but at least they’ll have a college degree and a car – both bought on credit – to show for it.