Consumer Borrowing Up in June. Reading Tea Leaves.

The latest data from the Federal Reserve is out for June 2011.

The data shows an increase in revolving consumer borrowing for primarily commercial banks.

Commercial banks increased revolving consumer debt from May 579.2 billion to June 584.4 billion. Pools of securitized assets diminished between May and June from 41.8 billion to 41.5 billion.

Other sectors showed growth in unsecured lending as well. Lending was up at slower rates among finance companies, credit unions, and savings institutions. It remained flat among non-financial businesses.

Total consumer debt increased from at an annual rate of 7.7 percent in June.

The chart below shows the percentage change in revolving consumer debt from November 2009 through June 2011.

This chart shows percentage change in unsecured debt between March 2003 to June 2011. There is an apparent rebound as the slowing in the decrease of consumer revolving debt turns positive. Part of this change may be due to the cyclical summer vacation blip we typically see.

I would anticipate that in light of the current financial news about the downgrading of the U.S. economy that the odds are better than even we will see some constriction in borrowing if jobs growth stalls.

What is interesting to note is that the increase in consumer debt did not correlate to an increase in industrial production. Industrial production increased 0.2 percent in June after having edged down 0.1 percent in May. For the second quarter as a whole, total industrial production increased at an annual rate of 0.8 percent.

The production of consumer goods increased at 0 percent in June.

Consumer debt ratios, the percentage of income used to service debt, continues to fall as well as consumers shed debt and restrict their borrowing.

The household debt service ratio (DSR) is an estimate of the ratio of debt payments to disposable personal income. Debt payments consist of the estimated required payments on outstanding mortgage and consumer debt.

The interesting areas to watch now will be the default rate among card issuers, which continues to be very low, and if consumer confidence will begin to increase.

See also  Consumer Confidence Really Bad in August And Delinquencies Are Down


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