Revolving Credit Rollercoaster

The Federal Reserve tracks outstanding revolving consumer debt in its statistical release G.19. Revolving consumer debt is primarily, but not entirely credit card debt. The G.19 statistic includes all balances outstanding, not just those that are accruing interest and fees--it includes balances from transactors, who pay off their statement at the end of the month, as well as revolvers.

The last few months of G.19 statistics in terms of percent change at an annual rate have been a rollercoaster ride. In October and November revolving consumer credit grew at annual rates of 11.1% and 13.7% respectively. Now December has dropped to 2.7%. Any one want to share thoughts in the comments about what's going on? It looks like we had a spike and then a sudden curtailment (in the Christmas shopping season of all times, when we usually see a jump in revolving credit)?

Comments

[dug]

How much of this is just seasonal adjustment processes that aren't adequately capturing changing spending patterns around Christmas? Jobless claims got seriously skewed in late January for the same reason.

[Adam Levitin]

There's always a Christmas spike and a January drop. But this year the spike/drop has shifted a month early. Maybe the Christmas spending season has really shifted to October/November (be careful or you'll get what you advertise for!), but it's hard to believe that this would suddenly happen in one year.

[Frank]

Aside from the reporting nuances and seasonality factors there are other supply and demand forces at play.

On the supply side, note that the Fed also reports "Senior Loan Officer Opinion Surveys on Bank Lending Practices". The most recent results indicate a trend toward tightening credit card lending standards through the 4Q07.

Also, a review of 4Q07 earnings results and the related commentary from bank CFO / CEO's that focused on credit card performance indicate an almost across the board scaling back of balance transfer offers, 0% intro rates and an overall "battening down of the hatches" in anticipation of credit card portfolio deterioration.

On the demand side, there's an interesting dynamic at play related to home equity lending and credit card balances. Given the supply forces at play noted above, consumers may be reining in their use of revolving credit as their ability to tap into home equity as a "cushion" is all but disappearing. Combined with the supply forces, it seems logical that consumers would be scaling back their use of revolving debt.

Reports of some banks reducing credit limits, more aggressively pursuing adverse actions such as punitive fees, etc. is also resulting in consumer's scaled back use of revolving debt.

Clearly more data is needed but I believe that the larger forces at play in the broader economy and housing market have crept into the dynamics of the credit card market.

[ATM]

I don't know much about the technicals of how seasonal adjustment is done. Doesn't that smooth out the spikes of holiday seasons?

But if you take a look at the historical data, the annualized percentage change of total revoving consumer credit for the month of December is only 2.9% for the period between 2001 and 2007. So the final 2.8% (release on March 7th) doesn't look too bad.