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CONSUMER CREDIT “RISES” (BUT NOT REALLY)

The media is clamoring to discuss how today’s consumer credit report means that the household balance sheet is “improving”.  But this report shows no such thing.  The Fed reported:

“Consumer credit increased at an annual rate of 3-3/4 percent in February 2011. Nonrevolving credit increased at an annual rate of 7-3/4 percent, while revolving credit decreased at an annual rate of 4 percent.”

The reality, however, is that the “improvement” is entirely due to the Sallie Mae student loan reclassification.  You can see how this program has skewed the consumer credit data in recent years:

When you back out this segment you can see that the consumer is still in the midst of de-leveraging:

So no, consumer credit is not increasing.  Either way, the last thing this economy needs is a consumer that re-leverages.  Sure, it might be good for near-term growth, but ultimately it remains unsustainable.  The US consumer very badly needs to continue de-leveraging.

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