Consumer credit statistics from 2008

Consumer Stats Summary for 2008

By Sharon Secor

Direct Lending Solutions Staff Writer

Always awaited with interest, the release of the consumer statistics from the previous year offer important insights into the overall health and well-being of the economy as a whole, as well as a glimpse into the financial condition of the average citizen. With the global economic system shuddering with the aftershocks of multiple financial crisis situations, such statistics garner attention throughout the world, with financial experts across the globe eager to learn what they can about the financial future from such data.

The year 2008 saw many significant changes in the financial realm, some record breaking. On January 25, 2009, Market Watch reported that “the U.S. economy contracted violently in the fourth quarter, with gross domestic product falling at its fastest pace in more than 25 years.” From the global giants of finance to the world of Wall Street to the individual person dealing with day-to-day life and debt, the economic woes of 2008 affected individuals throughout the economic spectrum. These changes have been significant enough to cause the average consumer to reassess comfortable levels of spending and debt and have forced businesses of all sorts to reevaluate their business models and plans for the future.

Consumer Statistics Tell The Tale

The financial story of 2008 is easily read in the broad range of consumer statistics collected and recorded by a variety of agencies, both public and private. Of the many statistics used to measure the financial health of the nation, as well as that of the individual, one that has gotten a lot of media attention is the rate of consumer spending.

There is a reason that this particular statistic holds so much weight. Approximately 70 percent of the American economy relies on consumption. Thus, significant shifts in spending can have a real affect on the fiscal well-being of the individual, the nation, and in this era of the closely interconnected global economy, the entire world. In 2008, consumer confidence suffered as consumer spending fell dramatically.

According to data made available by the U.S. Census Bureau, retail sales began to falter during the summer months, with significant decreases beginning to become apparent in September 2008. By the end of the year, the data indicated that “U.S. retail and food services sales for December, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $343.2 billion, a decrease of 2.7 percent (±0.5%) from the previous month and 9.8 percent (±0.7%) below December 2007.”

The data also revealed that “total sales for the 12 months of 2008 were down 0.1 percent (±0.4%)* from 2007. Total sales for the October through December 2008 period were down 7.7 percent (±0.5%) from the same period a year ago. The October to November 2008 percent change was revised from -1.8 percent (±0.5%) to -2.1 percent (±0.3%). Retail trade sales were down 2.7 percent (±0.5%) from November 2008 and were 10.8 percent (±0.7%) below last year. Gasoline stations sales were down 35.5 percent (±1.5%) from December 2007 and motor vehicle and parts dealers sales were down 22.4 percent (±2.3%) from last year.”

Credit And Debt Have A Role

The pattern was similar for consumer credit, judging from figures supplied by the Federal Reserve Board. According to their data, “consumer credit decreased at an annual rate of 3-3/4 percent in November 2008. Revolving credit decreased at an annual rate of

3-1/2 percent, and non-revolving credit decreased at an annual rate of 4 percent.” During the first part of the year, however, like retail sales, those numbers were on the increase, though the increases were small, particularly when compared the numbers from previous years.

At the mid-point of 2008, information from the Federal Reserve indicated that consumers were spending 14.1 percent of their disposable income, the amount remaining after taxes, to pay mortgage and consumer debt obligations, down from the 2007 number of 14.3. However, this household debt service ratio can be a bit misleading, as many individuals, with the tightening of the job market and other financial factors, may be seeing a significantly higher proportion of their income going towards such expenditures.

Using data from the same source, in June of 2008, the Financial Obligation Ratio (FOR), which many experts deem a more accurate portrayal of consumer debt, as it includes such things as property taxes and homeowner insurance, was similar to that of 2007, with homeowners devoting 17.82 percent of their income on such expenses and renters spending 25.98 percent. Again, while these numbers may represent typical ratios, the individual ratio can vary widely.

Credit card debt reached record levels during 2008, with data from CardTrak indicating that it “was climbing steadily for most of 2008 at a 5% annual clip” and then, in the final quarter of the year, “the bottom fell out” as consumer spending slowed. According to their data, “consumer revolving credit, mostly credit card debt, declined in November for the first time in 2008.” Between January and September 2008, revolving credit increased $37 billion, pushing past an astounding $975 billion. However, by November 2008, there was a drop of $2.8 billion.

Interestingly, according to numbers supplied by CardTrak, November 2008 also brought another significant decrease, with data indicating that “the amount that consumers pay on their monthly credit card balances dropped like a rock in November to a record low.” In November 2008, cardholders paid just 15.96 percent of their balances, as compared to 18.42 percent in the previous month, marking the “largest one month drop ever.” CardTrak attributed a significant portion of this payment decrease to rising unemployment, which had by then crept above 7 percent.

Credit card debt delinquencies in general rose significantly in 2008, reaching record levels during the summer months, “the highest in five years.” CardTrak cited data from the American Banker’s Association, published in their Consumer Credit Delinquency Bulletin, which stated that “delinquencies based on total dollars outstanding for the July, August and September period (3Q/08) were 4.74%, compared to 4.32% in the second quarter and 4.00% for the same months in 2007. Based on the number of accounts past-due, the figures were 4.20% for 3Q/08, 4.54% for 2Q/08, and 4.18% one-year ago.”

On January 28, 2009, the BBC reported that the International Monetary Fund (IMF) recently issued a warning, stating that “world economic growth is set to fall to just 0.5% this year, its lowest rate since World War II.” Not surprising, considering the degree to which consumer spending affects the economy not just of a single nation, but rather, in this modern era of the global economy, that of the entire world. As noted in the caption of the Real Consumption and Real Wealth chart included in the economic report of the departing president, “real consumer spending fluctuates with real wealth.” However, another aspect of consumer spending relates to how people perceive their current economic circumstances and in this era of economic uncertainty, consumers are becoming much more cautious with their finances, which will continue to be felt throughout the world.

Related Pages in Our Site: 2005 | 2006 | 2007

Useful Resources: