Heading into today's consumer credit print we already learned last week that in March, with US consumer spending crashing the most on record as a result of complete economic halt due to the coronavirus pandemic...
... the US savings rate exploded to highest on record, and 13.1% of disposable income it was even higher than the peak of the Lehman crisis.
Now, thanks to the latest consumer credit data released on Thursday by the Fed, we know what much of that saving went to: paying down debt.
But not just any debt: according to the Fed's latest G.19 statement, in March total consumer credit plunged by a record $12 billion, obliteration expectations of a $15 billion increase, and the second biggest drop on record, plunging by $32 billion from February's $19.9 billion increase, runner up only to an $18.5 billion drop in June of 2019.
That said, if one looked only at non-revolving debt - i.e., auto and student loans - there was barely a move. In fact, at $16.1BN, non-revolving debt was practically unchanged from last month's $16.6 billion print. In other words, there was barely any decline when it comes to US spending on cars and "college tuitions" (because as everyone knows by know "student debt" is spent on anything but tuition, room and board and represents one of the biggest stealthy government handouts over the past decade).
Actually, there was something of note to add here: breaking down total non-revolving credit reveals that while student loans exploded by $42BN in the first quarter of 2020, the biggest quarterly increase in year, and rising to a new record of $1.683 trillion, auto loans actually dipped, declining by $1.3 billion from $1.196 trillion to $1.195 trillion, the first sequential decline since Q4 2015 when the US found itself in a minim manufacturing recession.
However, what was truly remarkable about the March consumer credit report is that one look at revolving credit, i.e., credit card usage or repayment, shows something striking: in March, Americans repaid a record $28.2 billion on their credit card bills as US consumer society literally went into reverse and instead of spending wildly as it does every other month, usually spending what it can't afford, consumers repaid the most on their credit cards ever.
And that's how the US consumer died with a bang: because as long as there is no visibility on the economy and job prospects, and certainly as long as there is a pandemic with ongoing state shutdowns and everyone working from home there will be no visibility, instead of spending Americans will go into credit paydown mode, crippling an economy which is 70% a direct result of the relentless US consumer spending. and needless to say, the 33 million in Americans who have lost their jobs are not going to go out and spend like drunken sailors any time soon.
So how long until this shocking plunge in consumer spending reverses? The true answer is that nobody knows, but until US consumers feel comfortable enough to once again use their credit cards, there can be no recovery.
What we find most surprising, however, is that in this day and age when the Fed has effectively institutionalized moral hazard and where failure is no longer punished as capitalism is now officially dead and zombie existence is rewarded, Americans still care enough about their credit rating to pay down their own debt even as corporations and the country go on one last spending spree which everyone knows will never be repaid.
Our advice to Americans with credit cards: go crazy, after all if everyone defaults it's the same as nobody defaulting.