Consumer Credit: Not Nearly as Robust as Reports Claim

So much for the "expected" -500 million print:

Consumer credit decreased at an annual rate of 5-1/2 percent in February 2010. Revolving credit decreased at an annual rate of 13 percent, and nonrevolving credit decreased at an annual rate of 1-1/2 percent.

As is my usual practice I've grabbed the data updates and put them into year/over/year graphical format (click on all charts to enlarge), thereby removing the seasonal impacts. Here we are!

No increase of materiality here in the second derivative (that is, households are still de-levering on the plastic side, and effectively flat on a non-revolving.)

In the larger time-frame:

For those who argue that we are emerging from recession and that we are seeing real final demand increases, you have to square that against these charts. It simply isn't happening. For a look at the contraction in dollar terms, the change is seen here:

That's a $9.5 billion decrease in revolving (credit card) debt in one month (February) and a $2 billion non-revolving decrease.

While in the intermediate and longer term de-leveraging is good for the consumer, in the short term it throws cold water all over the improving final demand picture.

Here's what's going on folks - the so-called "increased consumer spending" is coming from people not paying their mortgages, blowing it on silly stuff like iPads (AAPL) instead, along with the government borrowing and spending.

That's not positive for the consumer outlook (or profit outlook) at all, since that decision not to spend on mortgages (e.g. blowing off shelter costs) only works until the bank forecloses and you are forced to start paying rent somewhere. Then that cost which formerly allowed you to go out to eat at Olive Garden every night comes back with vengeance.

Last month's report was trumpeted as evidence that the consumer had turned the corner and was able to borrow and spend again, raising the possibility that the economy truly was turning and the government could start to cut back on the fire hose.

This report blows that argument to bits - we have a consumer that is tapped out with our GDP being supported only by massive borrow-and-spend at a federal level, aided and abetted by a massive stock market and credit bubble.

This is not going to end well.