The Federal Reserve G19 report is out for May and it shows an uptick in revolving consumer debt. On an annual basis the amount of outstanding unsecured consumer debt rose at a 5.1 percent annual rate. Moving up from $789.8 billion to $793.1 billion.
I’ve said for a long time to watch for an uptick in G19 revolving credit as an indicator that consumers are loading up on credit again and then it will take 18 to 24 months of steady growth before there will be a return to the debt relief demand from the 2008-2009 days.
But the G19 is not the only indicator, it’s just a clue that we will need to watch. Other factors are at play here that have an important influence as well. Are consumers feeling hopeful about the future and taking on credit they can afford or struggling to make ends meet and turning to unsecured credit as a crutch?
But if we look deeper into the G19 report I see something to is more of a concern. It was commercial banks that increased lending but if credit is going to flow like it once did it needs to be securitized and sold. In fact securitized revolving debt decreased in May. Without securitization and buyers, banks are limited in what they can extend. The days of being able to package debt and move it on to sell more debt will not exist.
In fact, that market has literally fell off a cliff in March of 2010.
The increase in revolving debt in May is attributed to an increase by mostly commercial banks and then some by finance companies and a smaller amount by credit unions. Even savings institutions increased a bit as well. But securitized pools of debt went down even more.
My concern for growth in the debt relief space now rests with jobs and what happens from current government talks to deal with the federal debt. Those talks and actions could result in government job reductions, reductions in funding of projects, higher unemployment, lower consumer confidence and more people that are less optimistic and looking to spend.
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