Suggestions Of Risk In Consumer Credit

Despite last month's substantial revisions that wiped out most of “residual seasonality” from the seasonally adjusted revolving series, it still remains for this year. The Federal Reserve staff eliminated the large swings in credit card use pivoting around the Christmas holiday. Consumers buy up a lot of stuff in advance of it, and then spend some several months after paying for it in either the literal sense (credit card bills) or foregone spending.

That much remains in the current series even if lowered to a considerable degree. The adjusted overall balance (which is different than the monthly “flow” series) fell in March for the second straight month. Revolving credit was up only slightly in January, meaning that, as of the current data set (who knows how it might be revised next year), consumers are behaved for all of Q1 according to our definition of residual seasonality (that isn't residual but is seasonal).

What we are interested is not so much the level of decline but that there is decline at all. The possible reductions in revolving balances aren't so much of an issue by themselves, rather they corroborate our view of consumer tendencies. As noted before, the reason we are seeing a more pronounced residual seasonality in the consumer credit data is surely income.

Last year was truly one of the worst non-recession years in a long time for the labor market. Consumers appear to have noticed despite what is surveyed, tabulated, and printed in consumer sentiment indicators. Incomes were bent down to a lower growth trajectory (which has amounted to, essentially, no growth at all) during the downturn 2015-16.

At least one group of issuers in the consumer credit universe appears to have noticed. While traditional (depository institutions) and credit unions continue to write new balances (both revolving and non-revolving), these important peripheral players are subtracting from their lending portfolios.

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