We (once again) are pleased to present a chart/commentary via Michael Panzner, author of "The New Laws of the Stock Market Jungle."
On Monday, the Federal Reserve reported that outstanding consumer credit rose by $11.5 billion in January, which was much stronger than the $5.2 billion expected. Consumer credit increased at an annual rate of 6-1/2 percent in January, up from a 4-3/4 percent pace in the fourth quarter. Both
revolving and nonrevolving credit posted moderate gains in January. The central bank also revised December’s total by an eye-popping 180%, from $3.1 billion to $8.7 billion.
In a conversation with Panzner, he emphasized that as people are less able to finance activities with the cheaper mortgage option, they are returning to the more expensive, unsecured credit card debt. I hasten to add that this is just in time for the new non-dischargeable credit card bankruptcy law!
click for larger chart
The chart, taken together with recent data suggesting that "cash-out refinancings" and "home-equity borrowings" have been losing steam, suggests that is cash-strapped consumers are returning to form — using credit cards to fund their profligate ways.
If so, that could generate further upward pressure on household debt service ratios — already nearing multi-decade highs — and lend additional support to the view that consumer’s ability to keep on spending may be at risk.
CONSUMER CREDIT OUTSTANDING (G19)
March 7, 2005