Consumer credit is an economic indicator that measures the amount of debt held by households in an economy.
It measures the amount of credit extended to consumers in a given period of time.
Consumer credit is a key driver of consumer spending, which in turn drives economic growth.
As such, consumer credit is closely watched by economists and policymakers as an indicator of the health of the economy
Let’s explore the importance of the consumer credit indicator, how it is calculated, and its impact on the broader economy.
What is Consumer Credit?
Consumer credit refers to loans and credit extended to individuals for financing personal expenditures, excluding mortgage loans used to purchase real estate.
It includes various types of credit, such as credit card debt, auto loans, student loans, and personal loans.
Consumer credit is an essential component of an economy, as it enables consumers to purchase goods and services, which in turn drives economic growth.
How is Consumer Credit calculated?
In the United States, the Federal Reserve collects and publishes data on consumer credit on a monthly basis.
The data is divided into two main categories:
- Revolving Credit: This type of credit includes credit card debt and other forms of credit that can be used, repaid, and used again. Revolving credit allows consumers to borrow and repay funds up to a pre-established credit limit.
- Non-Revolving Credit: This category includes installment loans such as auto loans, student loans, and personal loans. Unlike revolving credit, non-revolving credit involves borrowing a fixed amount of money that is repaid over a specific period, usually through regular monthly payments.
Why is Consumer Credit important?
Consumer credit serves as a key indicator of consumer spending and overall economic health.
Here are some reasons why consumer credit is significant:
- Consumer Spending: Since consumer spending accounts for a substantial portion of a country’s gross domestic product (GDP), an increase in consumer credit often signals higher spending and economic growth. Conversely, a decline in consumer credit may indicate reduced consumer spending and a potential economic slowdown.
- Consumer Confidence: A rise in consumer credit may reflect increased consumer confidence, as individuals are more willing to take on debt when they feel optimistic about their financial future. On the other hand, a decline in consumer credit may suggest that consumers are becoming more cautious due to economic uncertainty.
- Financial Stability: Monitoring consumer credit levels can help identify potential risks to financial stability. Extremely high levels of consumer debt could lead to increased loan defaults, which might negatively impact the financial system and the broader economy.
- Monetary Policy: Central banks often use consumer credit data to assess the effectiveness of their monetary policy. For instance, if consumer credit is not growing despite low interest rates, it may indicate that monetary policy is not effectively stimulating economic activity.
How is Consumer Credit measured?
Consumer credit is typically measured by the Federal Reserve in the United States, which publishes data on consumer credit every month.
The data includes both revolving credit and non-revolving credit, and is broken down by type of credit and lender.
Other countries may also measure consumer credit using similar methods, although the data may be published by different government agencies or organizations.
When is the Consumer Credit data released?
The Consumer Credit report is released monthly by the Federal Reserve in the United States.
It is typically published on the fifth business day of the month following the reporting period, around 3:00 PM Eastern Time.
The report contains data for the previous month, allowing investors, policymakers, and analysts to monitor changes in consumer credit levels and assess their impact on the broader economy.
Keep in mind that the release schedule can be subject to change, so it’s essential to stay updated on the latest release dates by checking the Federal Reserve’s website or following financial news sources.
Summary
Consumer credit is an important economic indicator that measures the amount of credit extended to consumers in a given period of time.
Consumer credit is a key driver of consumer spending, which in turn drives economic growth.
Increases or decreases in consumer credit can provide valuable insights into the health of the economy and the confidence of consumers.