Friday, October 15, 2010

Consumers and Credit -- Behaviors may not be changing

One item I follow are aggregate debt levels as well as additional focus on the consumer as they are a large portion of GDP.

A WSJ blog entry from Sept 18 caught my eye and the results of their analysis are very interesting.

Their conclusion is the consumer is not voluntarily deleveraging, rather it is from charge-off and defaults.  This information does synch with how retail sales continue slowly rising even in the face of declining credit. 

From the WSJ:

There are two ways, though, that the debts can decline: People can pay off existing loans, or they can renege on the loans, forcing the lender to charge them off. As it happens, the latter accounted for almost all the decline. Our own analysis of data from the Fed and the Federal Deposit Insurance Corp. suggests that over the two years ending June 2010, banks and other lenders charged off a total of about $588 billion in mortgage and consumer loans.
That means consumers managed to shave off only $22 billion in debt through the kind of belt-tightening we typically envision. In other words, in the absence of defaults, they would have achieved an annualized decline of only 0.08%.

Interesting data providing for very different conclusions. People will shop until their credit cards are pried from their cold dead fingers.

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