CONSUMER CREDIT STILL CONTRACTING
The Fed is out with the latest consumer credit figures and they’re showing another contraction in credit, though substantially improved when compared to recent months. Total consumer credit decreased at an annual rate of 1.5%. Revolving credit decreased at an annual rate of 3.75%, and nonrevolving credit decreased at an annual rate of 0.25%. Econoday reports:
Consumer credit contracted less than expected in May, at $3.2 billion vs. April’s mammoth contraction of $16.5 billion ($15.7 billion first reported). May’s contraction was centered in revolving credit, at $2.9 billion on top of April’s $8.7 billion contraction. Consumers are saving, not spending, and banks are pulling back available credit on credit cards. Nonrevolving credit fell $0.4 billion in May. The scarcity of credit and the unwillingness to draw on it are major factors limiting economic improvement, not just in the consumer sector but in the business sector as well.
This is in-line with data from the jobs market and delinquencies where a new record high was reported just yesterday. US News reports:
The trade group says that more than two million jobs were lost in the first quarter of 2009, bringing the job-loss tally to more than 6 million since the onset of the recession. As layoffs mount, more Americans become unable to make loan payments. The delinquent balances on accounts included in the ABA’s composite of eight different installment loan categories increased to 3.35 percent in the first three months of 2009, up from 3.16 percent in the last quarter of 2008, according to the ABA’s most-recent Consumer Credit Delinquency Bulletin, released Tuesday.
“The number one driver of delinquencies is job loss,” James Chessen, the ABA’s chief economist, said in a statement. “When people lose their jobs, they can’t pay their bills. Delinquencies won’t improve until companies start hiring again and we see a significant economic turnaround.”
At the same time, delinquencies in home equity credit have hit record highs. Home equity loan delinquencies rose to 3.52 percent, an increase of nearly half a percentage point from the previous quarter. Delinquencies on home equity lines of credit, meanwhile, jumped 43 basis points to 1.89 percent.
“Even if home prices stop falling later this year, unemployment will keep home equity delinquencies high for some time,” Chessen added.
