Brief Note on Big Surge in US Consumer Credit

Late yesterday the US reported the biggest jump in consumer credit a decade. It reinforces the signal of the gradual healing of the labor market and the resilience of the US consumer. The report increases the risk that the November personal consumption expenditures are revised higher from the initial 0.1% estimate.

Consumer credit jumped $20.4 bln in November, nearly three times larger than the consensus expected. The recent string of US economic data has surprised the market to the upside by such a magnitude and for a sufficient duration that economists will likely make an adjustment in their forecasts, possibly just in time for the January data to show some moderation after what appears to be the strongest quarterly growth in over a year.

Non-revolving credit rose 10.7% or $14.8 bln to $1.68 trillion. Non-revolving credit has been inflated by the increase in federal student loans. It also picks up auto loans and we know, auto sales rebounded to their strongest pace since the cash for clunker program in the last part of 2011.

Arguably, even more telling for broader household consumption was the 8.5% increase or $5.6 bln rise in revolving credit. This is essentially credit card usage. As wage income hovers in a trough, what is fueling consumption ? Partly it is credit cards and partly it is a draw down savings. Government figures show the US savings rate has fallen from 5.1% in Nov 2010 to 3.5% in Nov 2011.

US consumer credit has increased in 13 of the past 14 months. Yesterday's report helped spark the recovery of the Canadian dollar and Mexican peso beginning late yesterday and into today's session.