Consumer Credit Report

By Ryan Barnes

Release Date:	About five weeks after month's end
Release Time:	3pm Eastern Standard Time
Coverage:	Monthly
Released By:	Federal Reserve Board
Latest Release:	http://www.federalreserve.gov/releases/g19/

Background
The Consumer Credit Report is a monthly release from the Federal Reserve Board that estimates changes in the dollar amounts of outstanding loans to individuals, funds which are mainly used to purchase consumer goods. Loans backed by real estate, such as home equity lines of credit (HELOCs), are not included in the survey. The two classes of credit covered are revolving and non-revolving credit; revolving credit can be increased by the consumer up to a limit without contacting the creditor (as in credit cards), while non-revolving terms are fixed at the time the loan (as with an auto loan).

Both classes are segmented into the categories below. The Consumer Credit Report shows the outstanding balances for each:

• Commercial banks
• Finance companies
• Credit unions
• Federal government & Sallie Mae
• Savings institutions
• Non-financial businesses
• Securitized asset pools

Average interest rates are shown for many types of consumer debt, such as auto loans, credit cards and bank loans, collectively showing investors the overall "credit quality" of consumers and where the highest rates of growth are occurring.

Data is collected through surveys of banks, finance companies, retail sales outfits and credit unions, among others. Each release will show the three previous months' results, including any revisions to recent periods, if they have occurred.

What it Means for Investors
Consumer credit is considered a good indicator of the potential future spending levels seen in the Personal Consumption and Retail Sales reports, and shows the extent to which benchmark interest rates such as the fed funds rate and prime rate have manifested themselves at the consumer level (it can take six months to a year for macro interest rates to work their way down to consumers).

The headline stats of this release will be total consumer debt (expressed in trillions and seasonally adjusted), the current annual run rate of growth or decline, and the total percentage of credit card delinquencies. The delinquencies are studied because sudden spikes may lead to fears that consumers are overextended in their debt levels. Some economists will try to compare the default percentages seen in the most recent recession as a breakpoint - if current default levels approach it, they will look for a recessionary trend to show itself in other economic indicators.

These factors are important when investors consider that consumers make up more than two-thirds of total GDP consumption. If consumers stop spending or face a credit crunch, GDP will not be able to grow much. Investors in consumer cyclical stocks should be keenly interested in consumers' ability to spend more in the future.

Consumer credit figures have a lot of seasonal and inherent volatility, so investors should always review the current report for adjustments to prior periods, paying particular attention to revisions to year-over-year growth. Long-term trends are the most studied portion of the report, both in the total outstanding balances as well as the change in overall interest rates being charged.

The Conference Board has tapped consumer credit as a lagging indicator, and uses a ratio of consumer credit to personal income as a component of its Index of Lagging Indicators. The Fed operates on the theory that consumers will not significantly increase their borrowing levels until their personal incomes increases enough to justify the higher debt load. As such, borrowing may show the largest increases when the economy is already coming out of a recession, rather than during the worst of it.

Strengths:

• Contains detailed breakdown of auto loan figures, such as average maturity and prevailing interest rates
• Data is provided with and without seasonal adjustments.
• Release shows comparisons against previous month, previous year, and also against results from the last five years

Weaknesses:

• Only total growth in outstanding loans is shown; there is no way of knowing if consumer payments have fallen off or if new loan growth has slowed based on a falling consumer credit number (and vice versa).
• Absence of home-equity debt provides for an incomplete picture.
• Because it comes out after the consumer confidence report and retail sales reports for the month, some analysts will not look as intently at the consumer credit figures month to month, instead reviewing multi-period trends once or twice a year

The Closing Line
The Consumer Credit Report will not be a big catalyst in the markets because of earlier-released indicators, but it remains a good lagging indicator, especially when examined in conjunction with personal wage growth and interest rates. If prevailing rates are moderate and incomes are rising, consumer credit can grow in step without causing elevated fears in the market.

Investopedia.com