Econ Grapher

Consumer Credit

What is Consumer Credit?
Consumer credit is revolving and non-revolving loans/credit to individuals for personal purposes e.g. purchase of automobiles, holidays, minor home improvements, appliances, and general consumer spending. In terms of economic indicators, consumer credit is generally reported in estimated aggregate levels (but with the change in these levels being the key metric). In the US, the Federal Reserve reports consumer credit survey results on a monthly basis with a detailed breakdown between providers, interest rates, default levels, etc. It is interesting to track interest rates on consumer debt to gauge how monetary policy is being transmitted.

How does it relate to Markets?
Consumer credit is an important indicator due to its relation with consumer spending (however in practice the statistics are generally released on a lagged basis - esp. in the US, so it will be more confirmatory than predictive). Consumer credit is obviously an important indicator for economies like the US where domestic consumption spending is a key determinant of GDP. Thus higher levels of consumer credit growth will be indicative of higher consumer spending, and thus higher GDP/economic activity. However too much growth in consumer credit and demand for borrowing may push up interest rates; it may also create vulnerabilities in the system if consumers take on too much debt.

Revolving vs Non-revolving
Revolving credit refers to credit or loans that can be increased by the borrower up to a limit without renegotiating with the lender (think credit cards). Whereas non-revolving credit refers to loans that have a fixed term, for example a car loan. Studying the relative changes of revolving and non-revolving credit can be informative e.g. auto subsidies can skew up consumer credit by over-inflating non-revolving credit. Similarly revolving credit is more indicative of general consumer spending as it reflects credit card purchases.

Sources and further reading:
The MIT Press - The Economics of Consumer Credit
Econoday - Consumer Credit
Investopedia - Consumer Credit
Consumer Credit in Europe
Finlay, S. (2009). Consumer Credit Fundamentals. Second Edition. Palgrave Macmillan.

Graph Library:
Metric - Consumer Credit

Original Source: http://www.econgrapher.com/encyclopedia-consumercredit.html

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