Add another economic indicator to the monthly must-watch list: The Federal Reserve's report on consumer credit. Now, if you were just glancing at recent headlines, such as the Associated Press' "Consumer Borrowing Slows in May," you might think there wasn't much to pay attention to. Overall, borrowing grew at a modest annual rate of 2.4 percent in May.
But as Dean Baker notes in his economic reporting watchdog blog, Beat the Press, the number that really jumps out of Monday's Fed report is the figure for revolving credit, better known as credit card debt. That rose at an annual rate of 9.9 percent, the most since 2004.
Baker cautions that a one month data blip is never sound evidence for predicting a trend, but then he goes ahead and speculates anyway, connecting the dots between the jump in credit card debt to the slowing housing sector. Homeowners who were borrowing against their equity to fuel their consumption are now facing the grim reality that home prices are stagnating, or even falling in some regions, and those adjustable rate mortgages are resetting and bumping up the monthly payments. So the mighty American consumer is turning to his and her credit cards to keep the cash flowing -- and by extension, the global economy. Keep an eye on next month's revolving credit numbers, says Baker -- it could be a clear sign that the housing slowdown is beginning to bite.
And certainly, if you live in Denver, the boom has turned to bust. The Housing Bubble Blog directs us to a story from the Rocky Mountain News that reports that "More than 9,500 real estate foreclosures have been filed in the Denver area in the first half of the year, about 34 percent more than in the first six months of 2005."
The nut: "Experts said foreclosures are being driven by several factors: adjustable rate mortgages that are rising with interest rates; interest-only loans; houses sold to people with less than stellar credit ratings who in previous years wouldn't have qualified for loans; programs allowing homes to be purchased with no down payment; overbuilding; the lack of new, high-paying jobs; and predatory lending and fraud."
Are Denver residents pulling out their plastic? Are we teetering closer to national insolvency? Not to worry, says a recent report to Congress from the Federal Reserve: "This review finds that as a matter of industry practice, market discipline, and banking agency supervision and enforcement, credit card issuers do not solicit customers or extend credit to them indiscriminately or without assessing their ability to repay debt."
And if you believe that, I've got an uninsurable $2.5 million luxury condo in the hurricane-prone Florida Panhandle that is just waiting for you to move right in.