Attached is the latest quarterly report on consumer credit from the NY Fed. They show minor signs of improvement. In my opinion, this could bode well for economic growth in the near-term, but likely means the debt overhang will only be prolonged as debt:income levels remain unsustainable. The last thing this country needs is an increase in private sector debt. I don’t think it’s safe to jump to any broad conclusions based on tepid signs of “improvement” though:
NEW YORK—The Federal Reserve Bank of New York today released its Household Debt and Credit Report for the second quarter of 2011. Consistent with last quarter’s findings, the report shows continued signs of healing in the consumer credit markets. The data show evidence of a modest increase in the willingness of consumers to borrow and banks to lend.
Among the results:
Balances on most loan types fell, but by very small amounts
Mortgage and home equity lines of credit both fell by $20 billion
Consumers’ non-real estate indebtedness fell by $10 billion (0.4 percent) and now stands at $2.28 trillion, 9.5 percent below its fourth quarter 2008 peak
Credit card limits increased for the second consecutive quarter—by $60 billion or about two percent
Account openings and closings continued their trends from the end of 2010
The number of open mortgage accounts held roughly steady again in the second quarter
Open credit card accounts jumped by 10 million, to 389 million
Credit inquiries within the last six months—an indicator of consumer demand for new credit—bounced back in the quarter after having fallen slightly in the first quarter
Delinquency rates and transitions continued their recent improvement
Both delinquent and seriously delinquent balances remain 15 percent below year-ago levels
New foreclosures fell again, bankruptcies rose as they tend to do in the second quarter
Both are well below their peak and year-ago levels. For example, new foreclosure notations were down 22.8 percent from the first quarter; new bankruptcies were down 23.8 percent from the second quarter of 2010.
“Outstanding consumer debt remained essentially flat, down just $50 billion, in what was basically a repeat of the previous quarter. This is more evidence that the pace of consumer deleveraging that began in late 2008 has slowed,” said Andrew Haughwout, vice president in the Research and Statistics Group at the New York Fed. “During the next few quarters we will gain a better understanding of whether this is a permanent or temporary break in the decline of total outstanding consumer debt.”
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.
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