June, consumer credit increased at a seasonally adjusted annual rate (SAAR), of 3.9%. Revolving credit increased at an annual rate of 5.0% percent, while nonrevolving credit increased at an annual rate of 3.6% percent. Total consumer credit increased by $12.40 billion (B), in June a 32.3% month on month, (m/m) decline and less than the $15.3B consensus estimate.
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.
Despite the large m/m decline in total credit, (May credit purchases significantly higher than the average over the prior six months), consumers continued to spend freely in June as revolving credit balances grew by $4.1B following a $6.9B surge in May. Nonrevolving balances increased by $8.3B, down roughly $3B from 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 are just now reaching the peak achieved in 2008.
Figure 2 compares growth rates of student and auto loans by quarter from 2007 through Q2-2017. In 2007 the split on auto loans accounted was 58% and student loans 42%. By 2016 the split was almost a complete reverse with 44% auto loans and 56% student loans. The health of the economy has a profound impact on both types of loans. In recessionary time’s auto loans fall into negative year on year growth as folks keep the old car going to conserve cash. Student loans on the other-hand surge in volume as students stay in school for a second or advanced degree as jobs are scarcer. In the period between 2008 and 2011 student loans averaged 13.6% year on year growth. Over the same time-frame auto loans recorded year on year declines averaging -3.6%. The auto loan growth rate peaked in the 2014/2015 period, averaging +9.2% per year. The growth rate has decelerated considerable of late reaching 5.5% in Q2 of this year. Student loan growth rates are also slowing, declining from an average of 8.5% in the 2013/2014 period to +6.4% over the last four quarters.
US consumers are willing to borrow as jobs are plentiful, confidence is high. A moderation in income growth has caused consumers to step-up credit buying, previously via auto loans and currently with credit cards. 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).