94% Of March Consumer Credit Was For Student And Car Loans

Zero Hedge ^ | 05/07/2014 | Tyler Durden

[SeekAndFind]

Another month, another confirmation that when it comes to the US consumer, it is all about student debt (and to a lesser extent, car loans). Moments ago the Fed reported that consumer credit number for March: at $17.5 billion, it not only blew out the expectation of a $15.5 billion increase (although when one adds last month's $3.5 billion downward revision to $13.0 billion the two month total actually missed), but was the highest monthly increase since February 2013. That's the good news.

 

The bad news was once again in the composition: of this $17.5 billion $16.4 billion was non-revolving debt, or about 94% of total. The "good", or revolving, credit card debt? Only $1.1 billion.

Further, recall that traditionally when measuring a consumer's confidence in the economy, and their ability to grow their income, the best proxy is a simple one - their credit card. Unfortunately, in the New Normal that is not the case, and as the chart below shows, revolving credit has barely budged from its post-Lehman lows and is still about 20% away from its previous all time high.

 

As for student debt? We'll just leave that one to the Fed to show:

 

 

So where does the consumer credit growth come from? Simple: mostly student and to a lesser extent car loans, aka non-revolving debt. The same student loans which Janet Yellen earlier today lamented are the main reason for the slowdown in household formation, and by implication, the reason why the housing recovery is failing to stick for the fifth year in a row, and despite $2.7 trillion in liquidity injections by the Fed.

 

Oh well, maybe next month things will be different and all that student debt which is crushing the willingness of young Americans to go out and spend on bulk purchases will be restored.

Finally, and perhaps most important, for all the talk about a surge in consumer bank loans, it bears highlighting that of all the consumer debt so far created in 2014, the Federal Government is by far the primary source at $36.8 billion. As for depository institutions, aka banks: negative $28.2 billion.

Some lending spree all right.

[musicman]

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[Obadiah]

It is not necessarily a bad investment if you have a reasonably attainable path to future employment. If the potential reward is at minimum parallel with the financial risk, then it may be worth it. But, for far too many, college is just the well-worn path they follow simply because of peer pressure and social status pressure. For too many, they are blackjack against the house by taking nebulous courses that never lead to any employment advantage at a;;.

[freerepublicchat]

Truth be told you’re right about that; there are no jobs and there is no way to live anywhere unless you’re an eternal student and live on campus.

As for a car, why a new car and not a used one?

Used cars are themselves so expensive now that many take out loans to buy them.

[nascarnation]

Does that chart indicate that prices are only 22% more than 1995 (14 yrs ago?)

Doesn’t seem that big an increase to me.

[familyop]

"People have to buy cars after their old cars wear out."

Intelligent Investing Panel
Going Great Guns
Forbes
David Serchuk, 04.23.09
"Sonders:...And almost by virtue of population growth and demographics and all those things, some of these factors just can’t mathematically continue at the pace that we have seen, you know, at a 9 million pace of auto sales. You’re looking at a requirement that every car on the road is going to have to last, you know, 25 to 30 years. So I think there are some bubbles that have formed, with Treasuries probably being top on the list..."
[...] "Forbes: I was in Colorado, and I knew people who had 200, 300 guns. And they'd stash them in various hidden places around their compound. This wasn't all that uncommon out west."
[...]
"Thomas:...But, you know, you could always find another job that would pay all right, and pay slightly above minimum wage, could allow you to at least live and have a home in most communities. And I think that's slowly changed."
[...]
"Sonders:...we have gone from a couple decades ago being a manufacturing economy to more of a service-oriented, information economy. That has just displaced permanently a lot of workers,..."

[B4Ranch]

>>Mine’s 15 YO. My commute’s about 6 miles to the light rail station. I’m not putting any more money in it...period. <<

Change your oil filter every six months!

[griswold3]

Don’t forget the reason students are going into debt. They are opting for higher education because there are NO JOBS. They are hoping that in the 4 or so years they bide their time in class, the job outlook will improve over that period.
Boy, are they gonna be surprised. The ‘New Normal’ brought to you by Obama & Co is just what you see before you.

[kearnyirish2]

“It is not necessarily a bad investment if you have a reasonably attainable path to future employment. If the potential reward is at minimum parallel with the financial risk, then it may be worth it.”

This doesn’t work; college costs remain high (to pay academia) while wages are being driven lower all the time. Anyone earning $40K or more (a number I just pulled out of the air) has forces working furiously behind the scenes to either send that work overseas of bring in foreigners to do it. Unless one is employed by the government, those wages required to pay off that debt will never materialize. Never mind paying normal living expenses with the McJobs available now; imagine having those loans on top of that?

[kearnyirish2]

“The ‘New Normal’ brought to you by Obama & Co is just what you see before you.”

You’re right; if people don’t yet realize by now that “globalization” and the “information superhighway” were the death knells for our way of life, they’ll realize it soon enough. This isn’t a temporary malaise that will pass; the traditional “quick fixes” (war and government spending) have failed, and there is nowhere else to go. Unless Red China and India engage in a destructive nuclear war, this is our future...

[griswold3]

Globalization, Technology and Demographics are the key to economic fundamentals.
We are victims of our own success.

[Undecided 2012]

IMO, had the US government never got into the student loan guarantee (Like mortgages) we wouldn’t have a student loan bubble. As long as colleges know the government will guarantee every loan they’ll raise prices. Democrats will never go for it but student loans MUST go back to being privatized. When students have to go convince a banker for a loan for a certain field of study, they must be able to convince said loan officer that they are not a high risk and has a high probability to pay such loan back. Plus students MUST put up at the least 20% so that they too have skin in the game.
Sorry for the rant but that’s how I feel.

[kearnyirish2]

I agree with you. In the news recently there has been talk of how colleges are seeking foreign students since less Americans are going; 20 years ago when I was in school they sought those students because they paid out-of-state tuition (they were more lucrative than “native” students). For too long these schools were accountable to nobody and squandered money; now the money is gone.

[Obadiah]

I fear you may be correct. And that's my point. College may really not be a good value any longer. Why spend all those exorbitant resources in an attempt to obtain something may never be there?

[kearnyirish2]

“College may really not be a good value any longer. Why spend all those exorbitant resources in an attempt to obtain something may never be there?”

Young people are catching on (to the point that colleges ADMIT seeking foreign students - which they’d been doing for decades); I think our higher education will contract (unless “saved” by those foreign students). People I know describe how small some colleges were until those dodging the Vietnam War draft swelled the ranks of students; in my area some have scaled down since...

[CorporateStepsister]

What a mess this country is in.