Consumer Credit and Consumer Mindset

Changes in consumer credit outstanding provide some additional insight into the mindset of consumers.

After all, confident consumers that see robust economic growth and job creation occurring now and promised into the future are far more likely to borrow for assorted purchases. On the other hand, of course, consumers that are worried about the economy are more likely to stand pat.

For good measure, consumer credit numbers can reflect the state of lending on the financial institutions side. Are banks keeping credit tight? What role might government regulation be playing in the credit picture?

The Fed reported that overall growth (annualized) in consumer credit outstanding slowed to 3.1 percent in April, down from 5.9 percent in March, and down from 5.8 percent growth for the first quarter. The key factor was a 4.8 percent fall off in revolving credit (mainly, credit cards).

Nonrevolving credit certainly suffered during the credit meltdown that started in the latter half of 2008, with a 1.2 percent decline in all of 2009, and then growth slowly resuming in 2010 (2.5 percent) and 2011 (5.7 percent).

But revolving credit saw a much larger and sustained decline – being flat for 2008, and then falling by 8.8 percent in 2009 and 7.4 percent in 2010. It barely edged up by 0.9 percent in 2011.

So far this year, revolving credit was flat in the first quarter, and then we see this decline in April. And the April level actually was below the level as of November of last year.

These latest consumer credit numbers from the Fed do not reflect consumers with high levels of confidence in the economy. Indeed, this data tends to reconfirm other measures already reported, including relatively low levels of consumer confidence and a poor rate of job creation. Throw in ongoing concerns about ramped up government regulation on the financial industry, and the consumer credit numbers should surprise no one.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is “Chuck” vs. the Business World: Business Tips on TV.