Consumer credit is somewhat useful as a gauge for actual consumer behavior in actual activity, as opposed to consumer sentiment surveys which tend to follow stock prices (and be dominated by the upper incomes) and the theory on the ‘wealth effect.’ In terms of the current ‘cycle’, orsupercycle as it may be, sentiment and debt could not be further apart. That divergence has been offset only partially by the introduction of the federal government as a bank, but that is more illuminating of the cycle/supercycle than any part of the current economic fortitude.
While measured and estimated sentiment has been steadily rising ever since the trough of the Great Recession, revolving credit usage has not. It wasn’t until 2011 that consumers stopped paying down, on net, credit cards. And even at that point there wasn’t a rebounding surge into debt as there had been in previous recoveries, including the ‘jobless’ varieties that are now ‘somehow’ normal. At most, beginning in early 2014, revolving credit has increased only modestly.
If the recovery had truly arrived in 2014 as the Establishment Survey awkwardly suggests, then the increase in revolving credit was fairly tame toward that idea. In other words, if there were indeed a ‘boom’ with proper sustainability expected in not just jobs but wages, then credit card usage should have gained far more. But such interpretations are tricky as any increase in revolving credit is as much related to the end of any cycle as to its beginning.
This post was published at David Stockmans Contra Corner by Jeffrey P. Snider ‘ April 8, 2015.
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