The key chart
The key message
Monthly consumer credit flows tell us a great deal about the relative strength of the US, euro area (EA), and UK economies and the risks associated with future growth.
The immediate response of US, EA and UK households to the pandemic was a consistent one – they all repaid consumer credit (i.e. negative monthly flows). The subsequent responses have been anything but consistent, however.
The US has seen 24 consecutive months of positive monthly consumer credit flows since August 2020. More significantly, these flows have been more than double their pre-COVID average since March 2022. This suggests that the risks to the US growth outlook include the sustainability of current consumer credit demand in the face of rising borrowing costs.
The EA has experienced more volatile monthly flows but the key message here is that monthly flows have yet to recover to their pre-COVID average. In contrast to the US, the risks to EA economic growth lie more in the lack of demand for consumer credit and on-going household uncertainty.
After two periods of consecutive negative monthly flows (March 2020-June 2020 and September 2020-February 2021), the UK has experienced 19 consecutive months of positive consumer credit flows. While the strength of the recovery here has been less than in the US, UK monthly flows have exceeded their pre-COVID levels since April 2022. The less-than-average monthly flow seen in September 2022, however, is a reminder that the risks to the UK economic outlook lie in demand for consumer credit stalling and household uncertainty returning.
Clues from consumer credit
Monthly consumer credit flows tell us a great deal about the relative strength of the US, EA, and UK economies and the risks associated with future growth.
The US
In the US, pre-COVID monthly flows averaged $14.9bn. In the early stage of the pandemic, US households repaid consumer credit for three consecutive months between March and May 2020. Monthly flows turned positive in July 2020 before turning negative again in August 2020.
Since then, there have been 24 consecutive positive monthly flows (see chart above). The latest data point for August 2022, indicates that the 3m MVA of these flows was $32.7bn, 2.2x the average pre-COVID flow.
Monthly flows have been more than double the pre-COVID average since March 2022 suggesting that the risks to the US growth outlook lie in the sustainability of consumer credit in the face of rising borrowing.
The euro area
In the EA, pre-COVID monthly flows averaged €3.4bn. In the early stage of the pandemic, EA households also repaid consumer credit for three consecutive months between March and May 2020.
Monthly flows turned positive in April 2022 but the subsequent trend has been more volatile than that in the US (see chart above). The latest data point for September 2022 showed a monthly flow of €4.8bn, which was 1.4x the pre-COVID average. The 3m MVA of monthly flows, however, was €2.2bn, only 0.6x the pre-COVID average.
The 3m MVA of monthly flows has yet to recover to pre-pandemic levels suggesting that the risks to EA economic growth lie more in the lack of demand for consumer credit and on-going household uncertainty.
The UK
In the UK, pre-COVID monthly flows average £1.2bn. In the early stage of the pandemic, UK households repaid consumer credit for four consecutive months between March and June 2022 and then again for six consecutive months between September 2020 and February 2021.
Since then, there have been 19 consecutive months of positive monthly flows (see chart above). These flows (on a 3m MVA basis) have exceeded pre-COVID flows since April 2022.
The latest data point for September 2022, shows a monthly flow of £0.7bn (0.6x pre-COVID flows) and a 3m MVA of £1.2bn (slightly below pre-COVID flows). A reminder that the risks to the UK economic outlook lie in demand for consumer credit stalling and household uncertainty returning.
Please note that the summary comments and charts above are extracts from more detailed analysis that is available separately.