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U.S. Revolving Consumer Credit Explodes by $10B

U.S. Revolving Credit

U.S. revolving consumer credit exploded in July as Americans racked up $10 billion in new revolving debt, mostly credit card debt. After adding a mere $4 billion in new credit card debt in the first three months of this year, U.S. consumers went nuts in April and May, adding more than $14 billion in the two-month period. After a pause in June, credit card debt soared by $10 billion in July.

The April and May bubble was largely attributed to pent-up consumer demand in the “rocky” first three months of this year. However, the July surge may be driven by upcoming trade taxes and a pick up in general consumer confidence. Regardless the pattern is reminiscent of the pre-recession consumer behavior of 10 years ago, notes Robert McKinley, Senior Analyst for CardTrak.

U.S. Consumer Revolving Credit

U.S. revolving credit, (97% credit card debt), increased at an annual rate of 11.2%, compared to one-year ago, and follows a revised 0.2% YOY (year-on-year) decline in June and a revised 8.3% YOY and 7.6% YOY increase in May and April, respectively, according to CardData.

U.S. revolving consumer credit stood at $1081.2 billion at the end of July, compared to a revised $1071.2 billion for June, a revised $1071.4 billion for May, and a revised $1064.1 billion for April, according to the latest figures released by the Federal Reserve earlier this month. At the end of 2018, Americans owed a revised $1053.5 billion in revolving credit.

On a quarterly basis, U. S. consumer revolving credit increased a revised 5.2% YOY in the second-quarter, compared to a revised 1.5% YOY in the first-quarter, and a revised 3.2% in the second-quarter of last year. U.S. revolving consumer credit is now growing at 4.12% CAGR (compound annual growth rate) since the second-quarter of 2015, based in analysis by RAM Research.

Non-revolving credit increased at an annual rate of 5.3% in July.

Total consumer credit, at the end of July stood at $4122.9 billion, after crossing the $4 trillion milestone in November.

Top 4 U.S. Credit Card Issuers Debt

Second-quarter credit card loan growth, among the Top 4 U.S. issuers, grew a paltry 2.6% year-on-year (YOY), compared to 3.4% YOY in the prior quarter, and compared to 4.8% YOY one-year ago. Among the nation’s Top 4 credit card issuers (Chase [JPM], Capital One [COF], Bank of America [BAC], and Citibank [C]), the annual growth rate for U.S. end-of-period (EOP) credit card outstandings in the second-quarter (2Q/19) is the lowest in the more than five years.

For the second-quarter U.S. credit card EOP outstandings, among the Top 4 posted at $440.2 billion, compared to $431.6 billion for 1Q/19, and $428.9 billion for 2Q/18. For the second-quarter of 2015, the Top 4 reported $357.9 billion in U.S. EOP credit card outstandings, according to figures collected by CardData.

The YOY gain in U.S. EOP outstandings for the second-quarter of 2.6%, compares to a YOY increase of 4.8% in 2Q/18, 6.1% in 2Q/17, and 7.8% in 2Q/16. U.S. EOP outstandings for the Top 4 U.S. issuers is now growing at a 5.31% compound annual growth rate (CAGR), according to RAM Research.

The spike for 2016 was largely attributable to the migration of American Express Costco credit card accounts to Citibank of approximately $13 billion. However, the gain for 2Q/19 was clearly driven by Chase, blowing the other three out-the-door by nearly three times, notes Robert McKinley, Senior Analyst for CardData.

U.S. Consumer Confidence

The Conference Board Consumer Confidence Index slipped slightly in August after a little bump in July and a little slump in June. The Index now stands at 135.1. The Present Situation Index – based on consumers’ assessment of current business and labor market conditions – increased from 170.9 to 177.2, its highest level in nearly 19 years. The Expectations Index – based on consumers’ short-term outlook for income, business and labor market conditions – declined from 112.4 last month to 107.0 this month.

While other parts of the economy may show some weakening, consumers have remained confident and willing to spend. However, if the recent escalation in trade and tariff tensions persists, it could potentially dampen consumers’ optimism regarding the short-term economic outlook notes Lynn Franco, Senior Director of Economic Indicators at The Conference Board.

Other Conference Board findings for August: The percentage of consumers claiming business conditions are “good” increased from 39.9% to 42.0%, while those saying business conditions are “bad” decreased from 11.2% to 9.8%. Consumers’ appraisal of the job market was also more favorable. Those saying jobs are “plentiful” increased from 45.6% to 51.2%, while those claiming jobs are “hard to get” declined from 12.5% to 11.8%.

National Consumer Sentiment

The preliminary August Survey of Consumers, by the University of Michigan, reports its Index of Consumer Sentiment (overall) declined in early August to its lowest level since the start of the year. The early August losses spanned all Index components. Although the Expectations Index recorded more than twice the decline in August as the Current Conditions Index, the Current Conditions Index fell to its lowest level since late 2016. Monetary and trade policies have heightened consumer uncertainty—but not pessimism—about their future financial prospects.

The University of Michigan observed consumers strongly reacted to the proposed September increase in tariffs on Chinese imports, spontaneously cited by 33% of all consumers in early August, barely below the recent peak of 37%. Although the announced delay until Christmas postpones its negative impact on consumer prices, it still raises concerns about future price increases. The main takeaway for consumers from the first cut in interest rates in a decade was to increase apprehensions about a possible recession. Consumers concluded, following the Fed’s lead, that they may need to reduce spending in anticipation of a potential recession.

U.S. Consumer Debt Ratios

Financial obligations and debt service ratios are both up six ticks, respectively in the first three months of this year, compared to the same period one-year ago.

The FOR (Financial Obligations Ratio) posted at 15.38% for the first-quarter (1Q/19), compared to 15.35% in the prior quarter, and 15.32% for 1Q/18. The DSR (Debt Service Ratio) reported at 9.91% for 1Q/19, compared to 9.89% for 4Q/18, and 9.85% for the first-quarter of last year, according to seasonally-adjusted figures from the Federal Reserve.

FULL MONTHLY REPORT ON U.S. CONSUMER CREDIT [2015-2019]

Source: Federal Reserve; RAM Research; CardFlash; CardData; CardTrak; Conference Board; University of Michigan; Chase; Citibank; Bank of America; Capital One