Investment Reports Understanding The Consumer Debt Report

In economics, consumer debt is the debt that is owed by the consumers as a result of purchasing goods that are consumable and/or do not appreciate

. In macroeconomic terms, it is debt which is used to fund consumption rather than investment, therefore is an increasingly important figure to gauge a nations economic growth. A rise in consumer debt, also referred to as consumer credit, is usually seen as a positive sign for an economy, as it reflects consumers willingness to spend and could also indicate a growth in peoples income. However, possessing high levels of any debt (let alone consume debt) with respect to income is not typically beneficial for an individual or a nation, as it increases the strain on income sources to maintain regular payments.

In view of these facts, the US Federal Reserve Board releases a Consumer Credit Report, aka. Consumer Debt Report, monthly that estimates changes in the dollar amounts of outstanding loans to individuals, funds that are mainly used to purchase consumer goods. Real estate backed loans, e.g. home equity lines credit, are not included in this survey. This report serves as an economic indicator that covers two classes of credit, namely the revolving and non-revolving credit. Revolving credit can be increased by the consumer up to a limit without contacting the creditor (as in credit cards), while non-revolving terms are fixed at the time of the loan (as with auto loan). Thus, the consumer debt report is based on outstanding balances of these two classifications segmented into various categories, such as commercial banks, finance companies, etc. The data is collected through surveys of banks, finance institutions, retail sales outfits and credit union, among others.

An important giveaway of this report is the credit quality, which is usually gauged in terms of average interest rates. That is to say, if the average interest rates shown for many types of consumer debts - such as credit cards, auto loan and bank loans - are high then it usually translates a poor credit quality. This is because the debtor could already be in enormous debt, barely have repayment/income sources or perhaps just a poor overall credit history. The opposite is true for good credit quality. Low average interest rates on such types of consumer debts are indicative of consumers have good credit standing.

The headline stats of a consumer credit report are total consumer debt, the current annual run rate of growth or decline, and the total percentage of credit card delinquencies. Delinquencies form a part of the study as an unexpected increase may lead to fears that consumers are overextended in their debt levels. As consumers make up for more that two-third of total GDP consumption, theses factorsthat are included in the report - are closely examined by the market investors and analysts, alike. In other word, the GDP is less likely to grow should the consumers stop spending or face a credit crunch.

To summarize, the consumer debt report is a part of investment reports, an all-important economic study performed by the Fed Reserve that provides details and assess the consumers outstanding debt against several other studies. Though it may not be a big catalyst in markets, it still remains a good lagging indicator, especially when analyzed in conjunction with personal income and interest rates. Therefore, if the consumer credit is rising in step with incomes and prevailing rates are moderate, then it should not cause any fears for the investors in the markets.

by: Gerald Rickman

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