Consumers Hide Their Plastic in August; Mortgage Delinquencies Dip; Employment Trends Bright

Total consumer credit dropped. National residential mortgages are down compared to the month before. And employment trends are slightly more optimistic.

Courtesy of Creative Commons Flickr user Images_of_Money

By Dees Stribling, Contributing Editor

Consumers deleveraged their credit card accounts somewhat in August, according to the Federal Reserve on Monday, perhaps indicating pervasive nervousness about the direction of the economy. Total consumer credit dropped 1.5 percent in July compared with June, but all of the decline was revolving credit, which was down 6.8 percent for the month. Nonrevolving credit — auto, car and student loans, mainly — actually gained 1 percent in July.

The categories of creditors tracked by the Fed includes banks, finance companies, credit unions, the federal government, non-financial entities and pools of securitized assets. Banks are far and away still the single largest class of consumer creditors, with about $1.176 trillion in outstanding loans, or roughly twice that of finance companies, who generally specialize in auto and other vehicle loans.

The federal government’s share is growing, however, with its relatively recent control of student loans. In 2009, the government held only $93 billion in consumer loans. As of July 2012, the government held $471.8 billion. By contrast, pools of securitized assets, including real estate-related MBS of various kinds, have been treading water for some time now in terms of volume outstanding. For all of 2011, the total averaged $55 billion; as of July 2012, it was $54.9 billion.

Mortgage Delinquencies Edge Down

According to the latest LPS Mortgage Monitor report, 7.03 percent of U.S. residential mortgages were delinquent in July, down from 7.14 percent in June. In July 2011, the rate was 7.8 percent. By the company’s reckoning, delinquencies  include loans more than 30 days past due but not actually in foreclosure.

LPS also said that 4.08 percent of all mortgages were in foreclosure process in July, barely changed from 4.09 percent in June and in fact barely changed from a year ago, when the rate was 4.11 percent. That probably points to increasing short sales or other methods for putting an end to residential delinquency without foreclosure.

“The July mortgage performance data shows a continuing correlation between negative equity and new problem loans,” LPS Applied Analytics senior vice president Herb Blecher said in a statement.

Nationally, 18 percent of borrowers who are current on their loan payments are underwater, ranging from a low of 0.4 percent in Wyoming to nearly 55 percent in Nevada, he added.

Employment Trends Slightly More Positive 

The Conference Board released its Employment Trends Index on Monday, and the index now stands at 108.59, up from the revised figure of 108.04 in July. The August figure is 6.2 percent higher than a year ago.

“Despite this month’s rise, the Employment Trends Index has barely increased since February, suggesting that slow job growth will continue in the short-term,” Gad Levanon, director of macroeconomic research at the Conference Board, said in a statement. “Economic activity expanded by less than a 2 percent rate in recent months, and this pace is likely to continue through the end of the year. In such an environment, it’s difficult to foresee the economy adding much more than 100,000 jobs per month.”

Wall Street lost some ground on Monday, still apparently nervous about China, Europe, unemployment, the elections and whatnot. The Dow Jones Industrial Average lost 52.35 points, or 0.39 percent, while the S&P 500 was down 0.61 percent and the Nasdaq declined 1.03 percent.