Rosenberg: “Welcome to the era of consumer frugality”

August 10, 2009

Gluskin Sheff’s David Rosenberg on last week’s consumer credit figures.

U.S. consumer credit outstanding fell $10 billion in June, the fifth decline in a row during which the debt balance has shrunk $60 billion or 5.5% at an annual rate.  Both figures are unprecedented.  As the chart below shows, the YoY trend, at -2.8%, is also running at its steepest contractionary rate in over five decades.  Welcome to the new paradigm of savings, asset liquidation and debt repayment [in] the era of consumer frugality. After 20 years of living beyond their means, American consumers will be spending the next several years living below their means, and no, this will not be the end of the world, but it will put a firm ceiling on overall demand growth for some time to come.

Here’s the chart to which he refers (click to enlarge in new window):


The chart depicts the growth of consumer credit.  Not the total level.  Consumer credit isn’t actually contracting unless the line goes below 0%.  And this excludes mortgage debt.

The data on consumer credit is here.

So is consumer credit too high?  I suspect it most certainly is.  But to make that normative judgment, you have to compare credit to something like disposable income or household net worth.  I’m working on putting that data together.

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