Wednesday, May 7, 2014

What's fueling consumer credit growth in the US?

US consumer credit report surprised to the upside today, beating forecasts by nearly $2bn.

One positive aspect of this report is that for the first time in months we are seeing a jump in credit growth outside of the government sponsored student loans.

The key to this report however is that the bulk of that growth increase was driven by auto finance. Revolving credit, which mostly represents credit cards, has remained subdued for quite some time now.

In fact auto finance balances in the US have increased by 4% from a year ago. Who is funding all this growth?

Banks have certainly been active, with Wells Fargo for example growing its auto loan book by 15% over the past year. And then we have the securitization markets, where asset-backed securities (ABS) are used to finance pools of auto loans and leases. ABS spreads have tightened since the taper-driven fixed income selloff last summer as demand for this paper remains strong.

According to Deutsche Bank, we've had some $39bn issued in the first quarter alone.

Source: DB

And it's not just about auto loans - securitization has been heating up in auto leases as well. Tracy Alloway has a great article in the FT (here) on auto lease securitization (which involves taking exposure to residual value of cars that come off lease.) 2014 could be a record year for such issuance. All of this activity has helped to improve consumer credit growth this year.

As an aside, these are precisely the types of markets the ECB would love to jump-start in the euro area (see post). With the banking system still undergoing deleveraging, the central bank is looking for a way to get the "shadow" banking involved in order to boost consumer (and corporate) credit growth.
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