A Tale of American Leverage in Two Charts

Since the Great Crash, Americans have frantically deleveraged their personal balance sheets. That may be one reason why retail sales, for the most part, have not accelerated at the consumption pace seen before the economy had it's meltdown. Having had their "near death" experience, people don't want to be caught crossing the street again. So although there has been a modest rebound in credit card use in the past year, consumers are back where they are in 2006, before things erupted.

REVOLVING.jpg

At the same time, there is a rising trend in non-revolving credit. The chart below includes the following: motor vehicle loans and all other loans not included in revolving credit, such as loans for mobile homes, education, boats, trailers, or vacations.

Non Revolving.jpg

Unfortunately, the Federal Reserve of St. Louis did not start tracking Auto Loan data in a "stand alone" chart until this year. However, with a fairly robust auto sector, loans outstanding have grown by less than $2 billion from January 1st, through the end of February. By comparison, not too big a factor in the chart above. I am presuming loans for boats, trailers and vacations are not spiking the numbers too much.

You can always sell a car. You can't sell a tuition loan.

The implications of this are a bit frightening. If student debt is allowed to accrue at the current pace, there will be nothing left over for graduates to use to consume even if they DO land that dream job. They are literally starting out in life with the equivalent burden of a mortgage on a substantial home. Which is a horrible way to spend what should be the best years of your life: plenty of income and few responsibilities of home and family.

The Federal Reserve Board of NY has just released this data (5/12/15):

FRBNY.png

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