Consumer Credit

Retail sales may have been soft in July but consumers were definitely drawing on credit lines including a rare and very strong rise in credit card usage. Consumer credit jumped an outsized $26.0 billion in July on top of an upward revised $18.8 billion jump in June. But it’s revolving credit, the component where credit cards are tracked, that especially stands out in the report, up $5.4 billion vs a $1.8 billion gain in June. This component has been stubbornly flat throughout the recovery and further gains in future reports would mark a long-awaited upturn in consumer spirits.

The non-revolving component, as usual, is very strong, up $20.6 billion in July vs a $17.0 billion gain in June. But July’s gain, unlike prior gains, is centered entirely in vehicle financing, not the government’s acquisition of student loans from private lenders which contracted in the month.

This report offers a very strong positive signal for the consumer sector, a sector that has not been at the forefront of the economy. The Dow is moving slightly higher following today’s report.

Note how debt to income ratios jumped immediately after the FICA hike that kicked in Jan 2014:

And note how the growth rate is creeping up just like it did prior to the last recession, as the smaller deficit puts the squeeze on struggling consumers:

Student loan growth: