Consumer Credit: End or Begin?

The end of deleveraging, or the end of the cycle? That is where pertinent attention needs to focus from April’s jump in revolving credit. For most of the “recovery” period, households eschewed credit cards. That changed in the snowy winters of early 2014, which either means deleveraging has finally run its course and a new debt cycle is beginning, or that the previous economic cycle has run dry and consumers have little other appeal.

There is, of course, still growth in auto and student loans, the vast majority of marginal credit, but credit cards have clearly shuffled to something outside of the past few years’ trend.

In context of the past two cycles, the current “spike” in revolving credit is rather miniscule by comparison. Thus, for the optimistic case, it isn’t the size of the jump but what it means, potentially, about finally getting some debt flowing. If we are instead going by cycle indications, where almost every measure and data series is currently pointing in the “wrong” direction, my money is certainly not on a new upswing fueled by debt. As to why that might be, you need only combine the little actual wage growth found recently with a falling savings rate.

That doesn’t necessarily mean we may be right at the very end of the cycle, but, as with corporate debt, in my mind it precludes us being at the beginning of a new one.