Is Credit Growing?

Today, the Federal Reserve released consumer credit data for January. Credit grew at an annualized pace of 2.4% during the month. The nonrevolving portion grew at a more rapid pace -- 5.0% annualized. Revolving credit, however, declined further, an annualized 2.3%. Yet, this data appears to indicate that overall credit conditions may be improving somewhat -- or is it just a blip?

This might be easiest to see with a few charts. First, here's the month-over-month change, annualized, for the trailing 12 months:

Even though credit continued to decline in December, the rate of change has switched directions since then. But this is a very jumpy chart. So let's smooth it a little by averaging each month's rate with the trailing two months:

Here, December appears to be the inflection point. So it may be premature to conclude that credit is definitely on an upward trend, though it may be.

These charts also highlight just how much revolving credit has been shrinking. They both clearly show that all of 2009 consisted of deeply declining revolving credit. Nonrevolving, however, entered positive territory at times, and grew significantly in January -- at approximately the same rate it for the same month last year.

Also from the report, it's interesting to note that credit held by the federal government continued to increase remarkably, at a 66% annualized pace. Meanwhile, credit held by nonfinancial businesses declined very substantially -- at a 40% annualized pace.