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.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.