In May, consumer credit increased at a seasonally adjusted annual rate (SAAR), of 5.9%. Revolving credit increased at an annual rate of 6.4% percent, while nonrevolving credit increased at an annual rate of 6.4% percent. Total consumer credit increased by $18.40 billion (B), in May much higher than the consensus forecast of $12.6B.
Consumer credit represents loans for households, for financing consumer purchases of goods and services, and for refinancing existing consumer debt. Secured and unsecured loans are included, except those secured with real estate (such as mortgages and home equity loans and lines).The two categories of consumer credit are revolving and nonrevolving debt. Revolving debt covers credit card use for purchases or cash advances, store charge accounts. Nonrevolving includes auto loans, personal and student loans and other miscellaneous items such as recreation vehicle loans.
Consumers opened their wallets wide in May as revolving credit balances surged by $7.4 billion following a $1.2 billion increase in April. This was significantly higher than the average over the prior six months. Nonrevolving balances increased by $11 billion, roughly even with May and the previous 6 month average. Figure 1 shows consumer credit outstanding from 2006 to present. The blue line represents revolving credit, while installment loans, is illustrated by the red line. Consumers have been much more careful with revolving credit since the great recession, the current level remains below the peak achieved in 2008.
Total US household debt was 12.72 trillion (T), in March, up 0.47T or 3.69% y/y and up 8.41% over March 2014. Referencing the latest treasury interest rate data available from the Federal Reserve, interest rates as of July 6th were: Treasuries 1 year, 1.23%, 5 year, 1.94%, 10 year, 2.37%, 20 year, 2.68% and 30 year 2.90%.
US consumers are willing to borrow as jobs are plentiful, confidence is high and wage growth has begun to pick up as the economy approaches full employment. Household balance sheets are in the great shape due to the rising home value and other financial assets. Debt payments as a percentage of disposable income are at record lows leaving room for consumers to take on additional debt.
We expect to see continued strong job creation and consumer spending in 2017. At Gerdau, we monitor consumer spending because history has shown that increased consumer spending (approximately 69% of GDP), translates into increased steel consumption (and vice versa).