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Slowdown in Consumer Credit Growth


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March 07, 2006

Slowdown in Consumer Credit Growth

Michael Mandel

Interesting news from the Fed...the new report on consumer credit (here) shows that consumer credit in January rose by only 2.9% over a year earlier, the smallest increase since 1993.

Perhaps more telling, consumer credit actually fell after adjusting for inflation and population size. That is, real consumer credit per person is down by about 1% over a year earlier.

Just an observation.

05:17 PM

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Rising interest rates is probably the reason.

Posted by: Kartik at March 7, 2006 06:05 PM

Perhaps it has something to do with the change of the bankruptcy law and consumer reaction to it? From the opposite angle, perhaps credit issuers are getting nervous?

Posted by: Brandon at March 7, 2006 07:17 PM

Impossible, all those haters and Europeans had me convinced that profligate Americans were sinking into debt and going down in flames. And now this? Damn, anybody want to buy some surplus survival rations?

Posted by: Josh at March 7, 2006 08:10 PM

I'm waiting to see the Fed's Z1 report for the fourth quarter, coming out Thursday. Then we'll know what happened to mortgage lending as well.

Posted by: Mike Mandel at March 8, 2006 12:28 PM

I think Brandon is right. The tougher bankruptcy laws passed on October 17, 2005, which times with the drop exactly.

Posted by: Kartik at March 8, 2006 01:04 PM

If the credit slowdown does conincide with the bankruptcy bill the credit card companies may have screwed themselves.

I know that on my balance the payment has skyrocketed so I have chosen to not utilize any credit.

Call it the "unintended" effect.

Posted by: Wes at March 8, 2006 03:15 PM

I believe that it is the new bankrupcy law and even more importantly, the knowledge that the value of homes is not going up, especially in the affluent bubble areas. We have inventories piling up, buyers are on the sidelines, and only an idiot would take out a big equity loan to pay off credit cards if he already has an arm and/or interest only loan. BTW, those loans make up a huge portion of all new loans in 2004/05 according to what I have been reading. We now have the prospect of the fed needing to protect the dollar, of needing to raise rates, at a time when everyone is in debt up to their gills. That has never been tried before. Could be interesting. Hope it isn't devastating. When Volker raised rates to protect the dollar against inflation, we were not a debtor nation!!! We are now.

Posted by: Gary Anderson at March 8, 2006 11:30 PM

Consumer credit doesn't include mortgages. The reason why it is so low is because people have been using more mortgage debt and less credit card debt to fund their consumption. In reality, American's debt levels have increased far more than what the consumer credit statistics show.

Posted by: Mike at March 9, 2006 01:29 PM


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