2013 Q4 Fed Z1 (Flow of Funds) Report
The Fed's quarterly Flow of Funds report came out today; its the Fed's big report that looks at the state of the credit markets in the US – households, banks, large and small companies, and governments. The report lags by two months; the report released today is as of Dec 31, 2013.
Why do we care? We care about credit because in general as credit goes, so goes the economy. If credit grows, so will GDP. If credit shrinks, we get deflation, and contraction, and all the rest.
Ok, so what happened?
TCMDO (total credit outstanding) grew by 840B to 59 trillion, or +1.4% over last quarter. That's a pretty brisk credit growth these days – annualized that's 5.6%, which is the best since the 2008 crash. However, the bulk of that came from the government (+371B), and that was likely due to the debt limit issues back in September – which limited debt growth for Q3, which was then pushed forward into Q4. So perhaps half of that 371B was just saved-up borrowing from Uncle Sam.
In the private sector, corporate business (+178B) and domestic financial (+152B) are doing the heavy lifting for credit growth. Households and small businesses are growing (+93B combined) but not dramatically. That makes sense – for most of us, incomes aren't growing, so its hard for households to take on more debt. Banks and corporations are doing much better, so they're borrowing.
However, if we look at the longer term view, credit growth is still lagging badly over what it was historically. We aren't even back yet to what used to be "recessionary" levels of credit growth.
Of course, there's always "the cautionary tale across the pond" – the ECB is probably wishing it had credit growth at all.
If you're the Fed, you aren't so happy about annual credit growth of 3.4%. There's no way we get "liftoff" (at least in the back-to-business-as-usual way of thinking) without credit growth of at least 7%. And even with all the printing and government spending, that's just not happening.
At least not yet, some 5 years after the crash.
Thanks for these charts, Dave.
This historically sluggish credit growth seems to support the hypothesis that economic growth is indeed anemic at what many (including me) would say are the last years of Hubbert's oil plateau, before a transition to a slide down the other side of the peak, into the valley.
Also, it is an important factor for any deeper analysis of the deflation vs. inflation question.