Consumer Demand for Revolving Credit Continues to Rise

September 18, 2007--The trade deficit narrowed in July, falling $0.2 billion to $59.2 billion. Concurrently, consumer credit rose 3.7% (annualized rate) to $2.456 trillion. In August, retail sales increased 0.3% while industrial production grew 0.2%. Last, business inventories rose 0.5% in August while sales jumped 1.1%.

 

International Trade
The trade deficit narrowed in July, falling $0.2 billion to $59.2 billion, a 0.3% decrease. Both imports and exports increased, but export growth was stronger, rising 2.7% to $137.7 billion. Imports rose 1.8% to $196.9 billion. The goods deficit with China jumped 12.5% to $23.8 billion and now accounts for 40% of our trade deficit. The weak dollar, which makes imports more expensive and exports cheaper, along with the continued revaluation of the Yuan, should help our trade deficit narrow going forward.

 

Consumer Credit
Consumer credit rose $7.5 billion to $2.456 trillion in July, a 3.7% (annualized rate) uptick. The increase was driven by growth in both revolving and nonrevolving credit, which grew 6.8% and 2.0%, respectively. Going forward, demand for revolving credit should continue to increase as people draw less from home equity and have to finance expenditures with credit cards. Increases in nonrevolving credit should be more temperate due to modest auto sales.

 

Retail Sales
Total retail sales rose 0.3% in August after rising 0.5% in July. The overall increase was driven mainly by a 2.8% surge in sales at motor vehicle and parts dealers. Core sales, which exclude gas and auto sales, fell 0.1% for the month. On a year-ago basis, top-line retail sales have increased 3.7% and core sales are up 4.9%. We expect continued moderate growth in retail sales going forward.

 

Industrial Production
Industrial production increased 0.2% in August following an upwardly revised 0.5% climb in July. Growth was caused entirely by a 5.3% jump in utilities output. Manufacturing and mining output both decreased for the month, falling 0.3% and 0.6%, respectively. Last, capacity utilization remained unchanged at an elevated 82.2% and continues to raise inflationary concerns.

 

Business Inventories
Total business inventories increased 0.5% in August following a 0.4% rise in July. Inventories at retailers grew 1.0% while manufacturer and wholesaler inventories both rose 0.2%. Total business sales rebounded in August, jumping 1.1% after falling 0.3% the previous month. Last, the inventory-to-sales ratio fell to 1.26.