Is consumer credit expanding or contracting? It depends what kind of credit you're talking about. Overall, credit increased by 3.8% in February to $2.42 trillion, according to the Federal Reserve. That's the biggest increase since June 2008, and the total is the most since March 2010. But this credit growth was achieved entirely through more nonrevolving credit, as revolving credit continued to fall.
Here's the chart, which is beginning to show recent trends pretty clearly:
You can see that total consumer credit (red line) began falling when the financial crisis hit. It then declined until last fall, when it began slowly rising again.
Nonrevolving credit (green line), however, remained pretty constant throughout the recession. These loans would be for assets like automobiles, education, and boats. It began rising more aggressively last fall, and hit a new high in February of $1.63 trillion.
Revolving credit (purple line) has followed a very different path. This category consists primarily of credit cards. It peaked prior to the financial crisis hitting its climax. Then, it began a rarely disturbed decline. Since September 2008, it only increased one month, in December 2010. Every other month it declined, including February, when it fell another 4.1% to $794 billion. That's its lowest total since September 2004.
So why is nonrevolving credit rising while revolving credit falls? One explanation is the government's influence. Of the major holders of credit, it's the only one where nonrevolving credit increased in February (on a non-seasonally adjusted basis). Moreover, it does not have any holdings of revolving credit, since it is not in the credit card business. This implies that private holders of credit like finance companies, banks, and other institutions are still a little bit cautious about their loans. It also suggests that Americans are continuing to aggressively pay down their credit cards.
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