USA: Credit to private sector
Net new credit positive in Q4 2010, for the first time since Q3 2008.
- Overall credit to the non financial private sector increased in Q4, in quite an encouraging development
- Details show wide contrasts: lending to the corporate sector is back to “normal”, whereas home mortgage debt is still in sizable contraction
The Federal Reserve’s Flow of Funds statistics for Q4 2010 were published yesterday. Among other information, this report gives a relatively comprehensive view on credit developments, i.e. not only credit coming from commercial banks but also lending from other sources (corporate bonds, commercial papers, government, government-sponsored enterprises, ABS issuers, finance companies, etc.).
Credit to the private sector encouragingly expended in Q4 This set of statistics shows that overall net new credit to the non financial private sector was positive in Q4 ($319bn annualised), following eight consecutive quarters of substantial credit contraction.
This encouraging bounce back in global credit outstanding over Q4 is the result of contrasted sub-sector developments:
- Credit to non financial corporate businesses
Lending to this sector has actually been substantially positive since Q1 2010 (see chart below), mainly linked to sizable corporate bonds issuance. New credit reached a quite high $413bn annualised in Q4 and, as a % of GDP, settled at 2.8%, already above its long-term average of 2.6%.
- Credit to non financial non corporate businesses
The size of the debt (mainly mortgages) of businesses that are not incorporated is not negligible. The credit outstanding of this sub-sector represents roughly one-third of the total for the entire non financial business sector. Lending to the non corporate business sector has been in deep contraction since Q1 2009 and remained negative in Q4 2010. However, the pace of deleveraging slowed down very substantially over the past few quarters and was almost nil in Q4 2010.
- Credit to households/consumer credit
Consumer credit bounced back very encouragingly in Q4 2010, with net flows being positive for the first time since Q2 2008. Furthermore, for this particular type of credit, comprehensive monthly data are available, and January’s numbers (published last Monday) suggest that net new consumer credit is likely to be even more positive in Q1 2011.
- Credit to households/home mortgages
This remains without a doubt the weaker sub-sector. Deleveraging in the home mortgage sector is continuing almost unabated. These poor developments are obviously linked to prolonged weakness in home sales but also to numerous foreclosures (which actually contribute to reduce the debt outstanding), and the fact that new mortgages are on average smaller than existing mortgages (that are reimbursed on a regular basis), owing to the past sharp fall in house prices. Net new credit is calculating by taking new credit minus reimbursements.
Overall, these data were pretty encouraging. Credit to the non financial private sector expanded in Q4, following eight consecutive quarters of contraction. However, the detailed panorama is pretty contrasted, with lending to the corporate sector already back to “normal”, on one extreme, and mortgage debt still in substantial contraction, on the other extreme.