Consumer credit exceeded expectations in December

Consumer credit outperformed consensus expectations with a gain of $18.8 billion in December, the highest level in the past 10 months and more than $6 billion higher than consensus expectations, according to report from Wells Fargo Securities. This move to acquire more debt is slowly building, after several years of de-leveraging by consumers following the recession of 2008 and subsequent recovery.

Both non-revolving and revolving credit contributed to the net gain. Non-revolving credit (student and auto loans) saw growth of 8% year over year. Revolving credit, which is primarily made up of credit card loans, increased at 1.9% year over year, the highest level in over six years.

Wells Fargo also notes that consumer credit as a percent of disposable personal income increased to an all-time high of 24.6%, indicating consumers have become more comfortable accruing debt.

The Federal Reserve’s Senior Loan Officer survey (SLO) released earlier this week stated that many banks had eased lending standards and had experienced higher demand for consumer loans, excluding home mortgages. If these trends continue it could mean further growth for consumer credit going forward.

The SLO survey respondents were asked about their expectations for loan delinquency and charge-off rates in 2014, assuming economic activity progresses in line with consensus forecasts. 

The domestic and foreign respondents indicated that they anticipated improvements in the performance of business loans. Domestic banks also reported that they expected improved performance for most types of loans to households, except auto loans to subprime borrowers, for which they expected increasing delinquency and charge-off rates in 2014.