Which loans are still being written in the United States?

Two rates, one month

Consumer credit in the United States grew at a seasonally adjusted annual rate of 4.2 per cent in July. Underneath that single number sit two very different rates: revolving credit at 2.5 per cent and non-revolving credit at 4.8 per cent. The headline hides the split that matters.^[1]

In money the gap is starker. The annualised flow came to 216.7 billion dollars, of which 33.6 billion dollars was revolving and 183.1 billion dollars non-revolving. The stock behind those flows is 5,186.2 billion dollars, of it 1,357.2 billion dollars revolving and 3,829.0 billion dollars non-revolving.^[1]

Who opens the line?

Start by dropping the picture of a pool of savings that households dip into. A loan is written by a lender, and the deposit appears as its shadow. That is why the two rates carry different information. A card balance grows when a household draws on a line it already holds, at its own initiative. An instalment loan grows only when a lender agrees to a fresh advance against a specific purchase. Credit arriving at 4.8 per cent on the second channel and 2.5 per cent on the first describes a decision taken on the lending side rather than a household reaching for a line it can already use.^[1]

The mainstream reading of the same figures is worth stating at its strongest: households are buying durable goods again, and the instalment channel simply records that demand. It may be so. But price does the same arithmetic. If the goods being financed cost more, each new contract carries a larger principal and the flow rises without a single extra unit being sold. The July release cannot separate the two, and neither can I. A 2.5 per cent card rate is itself still growth.^[1]

Where would the change show?

Consumer credit on the non-revolving side is contracted for a term and repaid on a schedule, so a tightening of lending standards would not shrink the 3,829.0 billion dollar stock for months. It would show up first in what is newly written. That makes the monthly flow the series worth watching, while the outstanding total registers the change late. It is also why a large and slow-moving stock can sit above a channel that is turning.^[1]

So the test is narrow and it is dated. While the revolving annual rate stays below the non-revolving rate, the instalment side should keep supplying the larger part of each month's flow, as it did in July with 183.1 billion dollars against 33.6 billion dollars. If instead the two rates converge, the reading here loses its footing and the demand story gains ground. Nobody holds the odds on that; what we have is the next reading of the same two lines.^[1]