Consumer jumped to to $15.2 billion (B) in January’s weak $8.8 B, beating the consensus estimate of $14.5 B. Revolving credit balanced fell moved-up $3 B month on month as non-revolving credit balances move-up a respectable $12.3 B. Non-revolving credit has maintained steady growth for seven consecutive months.
Figure 1 compares revolving and non-revolving credit from 2006 to present. Non-revolving credit has been steadily increasing, while consumers have been careful with the use of high interest revolving (credit card), debt.
Consumer debt loads are approaching 2008 levels which on the surface this may sound distressing, but the major difference between now and 2008 and now is that there are very few delinquencies and a low level of bankruptcy filings. Household balance sheets are strong thanks to rising home equity and solid stock market gains. In addition, household savings continue to be within normal bounds. This also lends support for the continued growth of consumers taking on additional debt.
Economists expect continued strong job creation at levels on-par with 2016. This bodes well for continued increased borrowing as consumer confidence continues to improve. Headwinds in terms of the pace of future interest rate hike could stall this growth as the FED Open Market Committee is leaning towards raising rates going forward. In addition, loan standards are beginning to tighten. The Senior Loan Officer Survey pointed to stricter credit standards for consumer loans and credit card in the fourth quarter. This was the first sign of tightening since the second quarter of 2010.
At Gerdau we monitor consumer spending because history has shown that increased consumer spending (which is approximately 70% of GDP), translates into increased steel consumption (and vice versa).