Consumer credit unexpectedly declined. But what do we make of it?
Unexpected Decline
Investing reports Consumer credit sees unexpected decline, impacting USD
The latest economic data revealed a significant drop in Consumer Credit, a key indicator of consumer spending and confidence. The actual figure came in at a surprising -7.49B, a stark contrast to the forecasted 10.30B.
This unexpected decrease in Consumer Credit, which measures the change in the total value of outstanding consumer credit requiring installment payments, has caught analysts off guard. The forecasted figure suggested a steady increase, in line with the previous figure of 17.32B. Instead, the sharp decline has raised concerns about consumer spending and the overall health of the economy.
The lower than expected reading is being viewed as negative, or bearish, for the US Dollar (USD). This is due to the close correlation between Consumer Credit and consumer spending and confidence. A rise in Consumer Credit often signals increased consumer spending, which can strengthen the USD. However, a decline, such as this one, can have the opposite effect, potentially weakening the USD.
Revolving Credit Drops 12% in November
PYMNTS reports Revolving Credit Drops 12% in November as Consumers Trim Balances
November’s stats from the Federal Reserve on consumer credit — known as the G.19 report — show a reversal from recent months, where households kept borrowing, padding balances, and using cards and other loans to finance daily life.
The question is: Was the decline in revolving credit (such as credit cards) and nonrevolving lines (fixed-term loans like auto loans), heading into the holiday season, a sign of things to come, when consumers will trim balances?
PYMNTS Intelligence has reported through the past few months a bit of a shift: Consumers have been moving toward installment options, which include card-linked installments and buy now, pay later plans. And elsewhere, in a recent “Paycheck-to-Paycheck” report, as of last fall, 75% of consumers carried at least some card debt.
Twelve Percent Annualized Decline
The drop looks enormous, but let’s put this in perspective.
Revolving Consumer Credit in Billions of Dollars
Much of the rise in consumer credit is a mirage of inflation. On a “real” inflation-adjusted basis, revolving credit is about where it was in 2008-2009.
From a mile-high view it looks as if nothing much is happening.
We get yet another perspective if we hone in on details.
Revolving Consumer Credit in Billions of Dollars Detail
Depending on what slant you wish to take, you can easily make the changes look enormous, trivial, or anywhere in between.
The above view shows shows no change in real revolving credit for 10 months starting February of 2024.
Since it is real spending that drives GDP, the above chart provides the best view. If the decline persists, the chart is recession looking.
Two Recession Indicators, What Do They Say Now?
On December 20, discussed Two Recession Indicators, What Do They Say Now?
I will update that series after the Jobs report on Friday.
Wolf Richter is still pushing the “everything is awesome” story because of consumer spending, while pretending not to notice the obvious inflation effect that shows up in all of his data. Not sure what’s going on there — he’s smart enough to know better, so I wonder if he’s getting paid to shill for someone’s agenda. My own take on the economy is that we may not be in a recession, but there has largely been stagnation since COVID, outside of a few areas of the economy (like health care, government and e-commerce) and if you think Bidenomics has been “awesome” you’re nuts.
It’s about time the consumer pulled back on spending, even the top 20%.
The Federal Reserve Thinks Trump is Going to Make Inflation Much WorseOfficials are deeply worried that the incoming president’s policies on immigration and trade will cause inflation to rise. https://newrepublic.com/post/190028/federal-reserve-thinks-trump-going-make-inflation-much-worse
You probably know about the housing inflation, and how it is unaccounted in official inflation. How do past immigration policies make it better? The FED apparently doesn’t, so this bs opinion is par for the course.
The magazine’s politics were liberal and progressive, and as such concerned with coping with the great changes brought about by middle-class reform efforts designed to remedy perceived weaknesses in America’s changing economy and society
The Fed never killed inflation to begin with. Which makes the September cut entirely political. Disgusting
Prepare for the eventual downfall of the economy in 2025..
“eventual” …and then you pick a date… when is your date Mr AI troll?
If the real credit figure is bogus due to incorrect estimates of inflation, this report shows that the consumer is actually retrenching. I am in this camp as I am in that the deflator for GDP is also bogus.
Costco reported December sales yesterday and the report was strong showing over 9% increase in sales in comparable US sales.
The barbell economy continues.
I’m eating nothing but rutabagas and lard.
Inflation will not stop. Just look at the LA Area wildfires. Thousands of wealthy homeless people are looking for homes because Pacific Palisades burned down. Imagine how much coastal Orange County real estate will jump. This is a windfall for Newport Beach homeowners, especially for those with multiple homes. On top of that, they have to buy all new furniture and clothes and cars and ….This will pour billions into the economy instantly.
Don’t give the incoming Administration any ideas, please. None of us want the Midwest torched so we’ll all be richer and better off in the long run?
Broken 🪟 fallacy.
Nope. Natural disasters always pump up economic growth.
Right on bud. Haiti is doing the bestest bc of all their disasters.
The core of the broken window fallacy argues that spending money on items that have been destroyed does not lead to economic gain. The broken window fallacy suggests that an event can have unforeseen negative ripple effects if money is redirected to repairing broken items rather than to new goods and services
Not to mention much of that area was uninsured or under insured meaning if anything this will be a deflationary shock for that area long term. Also unisurable property will not be in demand. Take off the socal hump glasses you are wearing
Those are all rich people and they have pleanty of money and insurance.
And yet, per the data, 1/5 had incomes below $80K and at least 1/5 were renters of apartments rather than “all rich”….
Agree property values will drop as people – starting with the insurance companies – realize it’s dumb to live directly downwind from massive piles of combustible fuel, and a region that gets Santa Ana winds Santa-annually.
Does that mean you are the arsonist behind the fires under the guise of pumping up economic growth?
California could have easily and more productively pumped up economic growth by the same amount by instead using that money to clear the underbrush, improve the electrical and water grids etc.
Most of the people are not wealthy.
Pacific Palisades? Hard to find a small home for less than 3M. That is starting lot value.
They will not be rebuilding very soon as permitting going to be multi year extravaganza.
Now that the Houses are gone any building is not grandfathered in any longer and must comply with current zoning.
Also suspect that codes are going to get tightened as to Fire compliance along with major infrastructure done to water supply.
You have a point and it crossed my mind this morning as I live east of NYC. Will be expecting an inflow of Homeless from LA moving back east. Gonna drive up local house prices even higher I’d suspect.
Not going to be too many states Blue dogs will feel comfortable relocating too. Where I am is one they will fit right in.
But as to inflation, those whose homes have been destroyed are in for quite a shock as to how much Building costs have increased compared to their original purchase.
This is going to bring real tears to eyes that will realize just how much they lost from what might have been avoided.
Those are wealthy people and most have insurance.
They are going to need it. Towns will most likely condemn whole neighborhoods, send in the Dozers to stop risk of Health problems from destroyed buildings.
Everything ends up getting resurveyed which means Title verification for starters.
This will be a Lawyers Wet dream.
Then comes all the environmental compliance issues, including groundwater contamination, subsoil conditions.
Then if it is on Ocean, Towns want that land for Public domain.
There are not going to be many with the fortitude to live thru all that strife after having their lives wrecked.
price rises are not inflation… credit is not expanding, therefore there’s no inflation.
Well, Musk has finally and openly admitted that $2T in cuts is not really feasible after all: https://www.cnbc.com/2025/01/09/elon-musk-says-doge-probably-wont-find-2-trillion-in-federal-budget-cuts.html
So that could be good and bad for consumer credit? $2T in cuts would have meant lots of layoffs and people with no more income (so would have to load up on CC). But now that only $1T will be cut, federal budget deficits will blow through the roof even more and some of us will have to end up paying more in taxes (yeah, right?) and we’ll have less disposable income so will buy less and put less on CC
This is all deflationary. There is an economic bust coming the likes which has never been experienced by most that are alive in America. Understand me now and believe me by mid-summer.
In isolation, it may be considered deflationary. But we do not know how Trump will respond.
Trump’s budget proposals are very inflationary. As of right now, the competing forces are stagflationary.
We do not know whether Trump can quickly pass a program. Nor do we know the Fed’s response.
The longer Congress bickers without sloshing money and the tighter Fed policy, the more likely we see a deflationary recession. But none of this is set in stone.
they are only inflationary if they prompt credit expansion.
But maybe MAGA is not all that different from traditional Republican orthodoxy after all?
Musk qualified his back-tracking by saying $1T in budget cuts and efforts to “free up the economy to have additional growth” would yield “an epic outcome”. Sounds a lot like the supply-side economics of Reagan? Cut taxes, run big deficits, but sometime in the future, we’ll grow so fast (even though real GDP growth is already at 2-3%) that we’ll cover the old deficit, the newly reduced taxes and make so much extra tax money we can take over the world militarily
Musk is right about one thing – the need to industrialise and commercialise space, and spread humanity off this rock.
Thanks, I will cover that
Of course, I lied, and I will lie again, and again, and again, and my minions will lap it up just like before. I am untouchable!
“Consumer credit unexpected declined”
unexpectedly, adverb
so rather than format the lede as “Expert once again fail to predict consumer credit decline”, the experts are again let off the hook and instead “unexpectedly” is blamed.
I’m glad I’m not “unexpectedly” that dude gets blamed for everything…
More permanent unemployment ahead.
https://dataconomy.com/2025/01/09/41-percent-of-global-firms-plan-layoffs-by-2030-due-to-ai/
there will also be new jobs created that don’t currently exist – that’s how tech change always works.
The domestic economy is in the same trap it has been in since 2001. I expect the incoming admin to say there is a recession anyway and use that to start deporting everyone they can. It will be a short-term net negative but it will induce deflation in a big way. Trump can then claim he brought the price of everything down for citizens by deporting both legal and illegal immigrants.
there is a recession anyway… the UST 2-10 yield spread inverted last year, and much of the EU has been tanking since 2022.
then there’s China, Japan, Korea, Australia, NZ, Canada all in recession.
Maxxed-out.
How many Purple Iphones and Lime Green Leisure Suits, does a man need anyhow?
There is very little I desire to purchase, that I don’t already own.
do i park the lettuce in the bank or in the mattress?
thats my only question..
For Hubris.
https://x.com/WesternLensman/status/1877400428201037926
More of a technical question, but do these numbers lump together debt that has been paid down and debt that has been written off by the creditors?
Good question – I did not consider writedowns. They have been big – but not sure how many hit specifically in Nov
I think, being in the banking business myself, we have seen with marginal borrowers the exponential growth of credit card balances over the last 6-8 years, and it has long been discussed that eventually rates would normalize off of 0% and then things, especially in the CC world would get interesting. Certainly we have seen this play out in the rental space as well- even when you discount the office building conundrum, which has a huge location component to it, you see a lot of supply that has been hitting every hot market that now is starting to feel the strain of normalized, sort of, rates over the last four years.
Discretionary consumption will take the hit in near term.
Basic reason is household operating costs are rising cumulatively faster then the ability to support it.
Consumers have no option but to take a pause.
If retired with assets there is a cushion built up over a lifetime.
If retired with not much to fall back on, getting a good book and sitting by the fireplace in winter and tending backyard garden in summer become a lifestyle.
If a member of that other caste system, working debt slaves, you will be hanging on waiting to see what comes from incoming administration as to economic policy.
These details as to tax relief and other methods of putting money back in your pocket are going to be revealed soon.
Are consumers using credit less, or are lenders withdrawing credit?
– Consumer credit unexpected declined. But what do we make of it?
> there is a lot in play here, but let’s start with one of the most significant, and that’s “Christmas Time” One of the very few times, people will go into personal debt for others. Not only that, but often in a big way, for various reasons but tied to “Emotions” mostly. I recollect the average of around $6,000.00 left over “In Holiday Debt” Years/decades prior to that was tolerated due to a 0% Int. Rate, and no Recession in play, ironically due to the 0% Rates.
– The latest economic data revealed a significant drop in Consumer Credit, a key indicator of consumer spending and confidence. The actual figure came in at a surprising -7.49B, a stark contrast to the forecasted 10.30B.
> So they went a bit crazier this year, and went $10K over, and added that to the $6K that remained.Inflation on top and you got some “Broke People” with No CC’s and No loans available to them. Mom & Dad tapped out, and P/T Jobs are getting harder to find. Unfortunately many need 2-3 Now!
– This unexpected decrease in Consumer Credit, which measures the change in the total value of outstanding consumer credit requiring installment payments, has caught analysts off guard.
> Harder and harder to see a problem, that doesn’t exist for you. Vacuum, Bubble, Self Absorbed, or whatever…
– November’s stats from the Federal Reserve on consumer credit — known as the G.19 report — show a reversal from recent months, where households kept borrowing, padding balances, and using cards and other loans to finance daily life.
> They’re “Broke” Finally. No more hand outs with $$$ in them. It’s over!!
Mish: I will update that series after the Jobs report on Friday.
Thank You Mish!!
Could it be that people are paying off their credit card balance before the statement date? I like to think positive always. 🙂
“Much of the rise in consumer credit is a mirage of inflation. On a “real” inflation-adjusted basis, revolving credit is about where it was in 2008-2009.”
Well, the consumers’ ability to repay has severely lagged the rate of inflation. So, they are very much worse off than where they were in 2008-2009.
consumers were better off when unemployment was nearly 10%. That’s an interesting take.
Inflationary depressions hurt everyone 😢
Yeah, I’m with you on this one, howard.
With 300M+ people living in the US, some amount of people will always be worse off than previously.
But in the 2008-09 “Great Recession”, SO MANY people were losing their homes in droves, and their life savings in closing banks and declining stock markets, and suicide rates were increasing. To compare “the consumer” situation of today as “very much worse off” with that period seems disingenuous at best, and completely clueless and without empathy at worst
Thanksgiving was a week later and Cyber Monday fell in Dec. could cause a shift in monthly timing.
we need a month long holiday in july to offset, the november/december season. it is literally trying to run the economy off of a single cylinder engine and wondering why it drags so badly, 2 cylinders balance each other,
Is it possible that some reduced consumer credit spending is people maxing out? If a person is already near their credit limits … their spending is automatically curtailed.
Try a chart from 1999 to present showing real per capita to get an even better look.
I do wonder how the traditional credit cycle is impacted by aging demographics. As more people reach retirement status they are less likely to need large amounts of credit because, in theory, they should have paid off their mortgages and other debt and are now more focused on health care consumption over everything else.
Sure a few retired folks travel and dine out but by the time you reach that age most major purchases in life are done so what happens to credit and consumption when 1/3 of the population is retired?
You have not, clearly, traveled overseas recently? We do, back and forth to Portugal and Europe and the planes are PACKED with the YOUNGER COHORT of Boomers (born in the early to late 1950’s up to 1964. The 1964 slice has just started LEAVING America or have already become ex-pats (we are “part-time” ex-pats due to my Health – – I need to be here in America for ongoing testing. Business and First-Class seats are jammed with retired boomers or younger generations who are leaving America to work as Digital Nomads. Porto and Lisboa are jammed with those younger people and mixed in with Wealthy Traveling Boomers who spend 60-90 days on tourist visas. NO, boomers are jamming in travel before they get too old to travel (like our Parents in their 80’s to 90’s – – they do not fly).
I have a home in Amsterdam so yeah, I travel to Europe probably far more than you do. I’ll be in Asia and South America this year exploring buying real estate there too.
But what’s your point about the credit cycle? what do packed planes have anything to do with credit? Are you saying everyone is charging these flights on credit cards so they need more credit?
If you’re burning cash flying back to the U.S. for healthcare you’re making really bad financial decisions, you can get better and cheaper care in Thailand or Malaysia than the U.S. But if you’re a socialist on medicare then it makes sense.
America holds roughly 300 million people, The average plane maybe 200 people. it will take many,many packed flights for years to export all retirees and “digital nomads” aka unemployed web surfers.
sometimes when you live in the ocean, you think the entire world is made of water..
Wait, you named digital nomads, the future hope of young generation, unemployed web surfers? Congratulation.
depression and deflation… it’s partly the demographic deficit and the development deficit… much of the world is facing a debt and demographics crisis, and the one in China is of epic proportions as they progress through Japanification there.
Consumer credit had a rise above the trend the prior month and this is only returning to trend if you take out the month-over-month volatility. More important is delinquency rate which remains relatively low and stable.
I don’t think that they should give credit cards to juvenille delinquents.
P.S. loved your Dad Preston’s movies. especially Sullivans Travel and The Lady Eve.