Consumers With Revolving Credit - Have To, Or Want To?

The Federal Reserve reported yesterday that revolving consumer credit in the US rose by a seasonally adjusted $10 billion in the month of July 2019. That was the largest single monthly increase since November 2017. Given how the latter month was related to “residual seasonality”, meaning Americans spending perhaps more than they wanted for the Christmas holiday, and the middle of summer is not, it raises some questions about what’s going on at the margins of the labor market.

As noted for some time, everything now hinges upon the employment and related data. What the Fed will do, how the public will see the economy, it will all come down to which way the BLS numbers trend. And I don’t mean the unemployment rate.

That’s why we might look at a tertiary indication like consumer credit. Seeking to validate our interpretations of what looks to be pretty weak employment and labor figures, the rise in especially revolving credit adds just a little bit more to that view.

Unlike before the summer of 2007, Americans are no longer in love with their credit cards. It now appears that these are to be used only when needed, more of a last resort than a first instinct. Why do we think this way? Because there’s a pretty clear inverse correlation between job growth and revolving credit card use dating back to the labor market slowdown which began (under Euro$ #3) in early 2015.

The trends again seem to be moving in opposite directions. The revolving credit balance, in the aggregate, is seeing larger monthly gains in 2018 and 2019 at the same time the Establishment Survey reports more and more the absence of big ones in jobs.

Obviously, this doesn’t prove anything; at best, an intriguing inverse correlation that might add some useful color for analyzing the plight of American consumers.

When looking at other data like retail or wholesale sales, the last couple of years (2018 and 2019, and a high residual seasonality figure in between) suggest consumers haven’t given up but they aren’t exactly holding up, either. More exhaustion than the strength let alone epic job market tightness central bankers and Economists have been talking about.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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