Consumer Credit for February 2011

I was listening to Karl Denninger (Market Ticker) this week and he broke down the Consumer Credit report and pointed out something very interesting, but before we get to that, lets talk about Consumer Credit.  Consumer credit measures the change in the total value of outstanding consumer credit that requires installment payments. It's correlated with consumer spending and confidence - rising debt levels are a sign that lenders feel comfortable issuing loans, and that consumers are confident in their financial position and eager to spend money.  This weeks consumer confidence number was forecast for 3.7B, but came in at 5.0B.  On the surface and in the main media they saw this as a win, as if consumers are expanding credit then they are spending in the economy.

The problem that Karl points out and that I broke down in the report was that the major activity that caused the number to increase was Federal Government 5 loans.  The number five correlated to Government Student Loans and the other commercial lending facilities (like commercial banks, credit unions, finance companies and others) actually reduced the amount of lending from the prior month.  This shows that if you take Government Student Loans out of the picture, consumer credit actually contracted month over month.