Consumer Credit Surges in May – Key Takeaways

The latest consumer credit release showed a big increase in consumer borrowing. The Fed says:

“Consumer credit increased at an annual rate of 8 percent in May. Revolving credit increased at an annual rate of 11-1/4 percent, while nonrevolving credit increased at an annual rate of 6-1/2 percent.”

The key points for me:

• I like to calculate a trailing quarterly year over year rate to smooth out this data.  We’re at 4.3% growth here.
• Revolving credit was up 11.2B in May.
• This is more evidence that the consumer is beginning to borrow again as the effect of the balance sheet recession is reduced.
• We still require large budget deficits to sustain positive economic growth as low interest income and continued de-leveraging will require support from the government.
• The biggest risk to the economy remains a sharp decline in the size of the deficit putting increasing pressure on consumers to borrow or de-lever while cutting back on spending.  The deficit supports spending while balance sheets heal.