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Consumer Credit Increases in May
Monday, July 14, 2014 6:30 AM

The Federal Reserve reported consumer credit increased $21.5 billion in May with both revolving and non-revolving credit accounts experiencing gains. Despite the fact it has increased four of the first five months of 2014, consumer credit only now shows growth for the year.

Revolving credit, namely credit card receivables, increased $7.8 billion in May, approximately half of April’s increase. Non-revolving credit, which includes vehicle and student loans, increased $13.8 billion, slightly lower than the $15.5 billion increase experienced the previous month.

For the year, consumer credit has increased $52.9 billion, mainly due to a $65.6 billion increase in non-revolving credit. The increase coincides with the dramatic increase in auto sales experienced during the first four months of 2014, which approached 16.9 million annualized units.

According to Brian Turner, director and chief strategist with Catalyst Strategic Services, the credit union market share for consumer credit increased in May to 8.86 percent from April’s 8.76 percent reading. Market share also increased from the 8.57 percent share recorded at the beginning of the year.

“The consumer credit data demonstrates how volatile spending behavior is in the economy. This is the third consecutive year that first quarter growth has been unusually strong due to automobile sales,” he said. “Typically this type of strength is experienced during the third quarter. Consumers’ use of revolving credit appears to be tied more to discretionary spending sentiment than from covering budget shortfalls. If this proves to be correct, a more positive outlook for consumer spending can be expected.”

Turner points out that the preliminary data on second quarter credit union activity suggests a continued lack of broad-based loan demand, although the industry as a whole is experiencing growth.

“The upward trend in credit union market share suggests the industry is capturing a respectable volume of consumer financing as it attempts to offset an expected drop in mortgage loan originations,” he notes. “It is projected consumer loans account for 47 percent of total loans, up from 45 percent at the end of 2010.”

A downward revision in consumer spending growth, from +3.2 percent to +1.0 percent, was a major contributor to first quarter’s -2.9 percent drop in overall economic growth. Previously, it was speculated the economy had contracted -1.0 percent. This doesn’t appear to be supported by the Federal Reserve’s data on consumer credit. This discrepancy will most likely cause an exaggeration in the first estimate for second quarter economic growth and an overstated increase in consumer spending.