Categories: General Market Commentary
Topics: General Market Commentary

The “Recovery” in Consumer Loans Isn’t Real

By Bud Conrad, The Casey Report

The amount of loans being provided by our banking system is a good reflector of the strength of our economy. Below is a big-picture view that shows the total loans in the U.S. as the Fed reports in its H.8 each week. We can see that loans outstanding declined at a rapid rate at the beginning of the current great recession, but there seems to be a recovery in the little jump at the end of the chart, as highlighted by the two small black arrows. A little closer look shows that the Consumer Loans segment is the source of the optimism that we see in the total. 


The Consumer Loans figure shows an impossible jump of $360 billion in a one-time change in April 2010, in the dashed blue line. Just graphically you can see that the jump is not consistent with history. The correct conclusion is that consumers didn’t go on a $360 billion borrowing binge in one month. The change was from how the Fed reported the data. In other words, the “green shoot” of apparent loan growth in the first chart is bogus. It came from a fluke in the data that couldn’t have happened, and so it didn’t happen. We don’t have evidence of recovery in loans but rather continuing their decline since the beginning of this recession in 2008. 


To get a consistent view, I adjusted the data from April forward to remove the jump to produce the gradually continuing decline as shown in the solid red line. Without the one-time change in the data from the Fed, the loans at banks have continued to decline.

When combined into the big picture, the result is that the private sector is still deleveraging its outstanding balance of loans. 


 

The rate of decline is still at the biggest level since World War II:
 

My interpretation is that the private economy is still in a downturn, because the Federal Reserve numbers when adjusted, as I provide here, are still showing we are in the worst decline on record. Not shown here is that government debt has been soaring, contributing to other positive economic numbers but leaving us with a debt burden for the future. I think the economy is weaker than the general consensus of economic reporters, because they haven’t looked as closely at what is inside the numbers.

[To get a big-picture view of where the economy is headed, read our FREE Special Report “The Good, Bad, and Ugly: Outlook for the Economy” – authored by the editors of The Casey Report. 20 pages of deep economic insight you can’t afford to miss: Click here to read it now.]

© 2011 Casey Research


The Casey Research web site, Casey's Investment Alert, Casey's International Speculator, BIG GOLD, Casey's Energy Confidential, Casey's Energy Report, Casey's Energy Opportunities, The Casey Report, Casey's Extraordinary Technology, Conversations With Casey, Casey's Daily Dispatch and Ed Steer's Gold & Silver Daily are published by Casey Research, LLC. Information contained in such publications is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. The information contained in such publications is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. The opinions expressed in such publications are those of the publisher and are subject to change without notice. The information in such publications may become outdated and there is no obligation to update any such information.

Doug Casey, Casey Research, LLC, Casey Early Opportunity Resource Fund, LLC and other entities in which he has an interest, employees, officers, family, and associates may from time to time have positions in the securities or commodities covered in these publications or web site. Corporate policies are in effect that attempt to avoid potential conflicts of interest and resolve conflicts of interest that do arise in a timely fashion.

Any Casey publication or web site and its content and images, as well as all copyright, trademark and other rights therein, are owned by Casey Research, LLC. No portion of any Casey publication or web site may be extracted or reproduced without permission of Casey Research, LLC. Nothing contained herein shall be construed as conferring any license or right under any copyright, trademark or other right of Casey Research, LLC. Unauthorized use, reproduction or rebroadcast of any content of any Casey publication or web site, including communicating investment recommendations in such publication or web site to non-subscribers in any manner, is prohibited and shall be considered an infringement and/or misappropriation of the proprietary rights of Casey Research, LLC.

Casey Research, LLC reserves the right to cancel any subscription at any time, and if it does so it will promptly refund to the subscriber the amount of the subscription payment previously received relating to the remaining subscription period. Cancellation of a subscription may result from any unauthorized use or reproduction or rebroadcast of any Casey publication or website, any infringement or misappropriation of Casey Research, LLC's proprietary rights, or any other reason determined in the sole discretion of Casey Research, LLC.

Affiliate Notice: Casey Research has affiliate agreements in place that may include fee sharing. If you have a website or newsletter and would like to be considered for inclusion in the Casey Research affiliate program, please email us at http://www.caseyresearch.com/affiliate/. Likewise, from time to time Casey Research may engage in affiliate programs offered by other companies, though corporate policy firmly dictates that such agreements will have no influence on any product or service recommendations, nor alter the pricing that would otherwise be available in absence of such an agreement. As always, it is important that you do your own due diligence before transacting any business with any firm, for any product or service.
© 1998-2011 by Casey Research, LLC.