CreditForecast.com

U.S. Consumer Credit Outlook

Scott Hoyt, PhD, Senior Director, ResearchDeniz Tudor, PhD, Director, Credit Analytics

U.S. Consumer Credit Outlook, August 15, 2018 2

Speakers

Deniz K. TudorDirector

Deniz Tudor is a director with Moody’s Analytics. Deniz specializes in U.S. consumer credit trends and leads the development of custom and industry-based econometric credit loss models for clients. Deniz is also responsible for product development, management and strategy, including data partnerships that expand the forecast capabilities of Moody’s Analytics.

Scott HoytSenior Director

Scott Hoyt is senior director for Moody’s Analytics, responsible for the firm’s consumer forecasts and analysis. Dr. Hoyt contributes to Economy.com, speaks at conferences, and oversees the production of the U.S. economic forecast. He has done custom modeling for credit and consumer sector clients.

U.S. Consumer Credit Outlook, August 15, 2018 3

Consumers Relinquish the Lead

Sources: BEA, Moody’s Analytics

Real, % change

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

12 13 14 15 16 17 18F 19F 20F 21F 22F

SpendingGDP

U.S. Consumer Credit Outlook, August 15, 2018 4

0

1

2

3

4

5

11 12 13 14 15 16 17 18

Average hourly earnings Employment Wage proxy

Wage Growth Looking Up

Sources: BLS, Moody’s Analytics

3-mo MA, % change yr ago

U.S. Consumer Credit Outlook, August 15, 2018 5

-800-600-400-200

0200400600800

1,000

06 07 08 09 10 11 12 13 14 15 16 17 18F19F20F21F22F

Govt contrib. OtherWages Total

Wages Driving Income GrowthDisposable income, $ bil, change yr ago

Sources: BEA, Moody’s Analytics

U.S. Consumer Credit Outlook, August 15, 2018 6

2

3

4

5

6

7

8

9

10

90 93 96 99 02 05 08 11 14 17

Current Prior

Saving Won’t Be a DragSaving, % disposable income

Sources: BEA, Moody’s Analytics

U.S. Consumer Credit Outlook, August 15, 2018 7

0.85

0.90

0.95

1.00

1.05

1.10

1.15

14 15 16 17 18

Current Prior

Dividend Income Led Upward RevisionsDividend income, $ bil

Sources: BEA, Moody’s Analytics

U.S. Consumer Credit Outlook, August 15, 2018 8

-1.2

-0.9

-0.6

-0.3

0.0

0.3

0.6

0.9

13 14 15 16 17 18

Current Previous

Retail Pricing Power Better Than ThoughtRetail sales deflator, ex gasoline, % change yr ago, 3-mo MA

Sources: BEA, Moody’s Analytics

U.S. Consumer Credit Outlook, August 15, 2018 9

1012141618202224262830

160170180190200210220230240250260

10 11 12 13 14 15 16 17 18

Median home price, $ ths (L)Wilshire 5000 Dec 31 1980 = 1.404596 (R)

Wealth Effect Starting to Fade

Sources: NAR, SIX Financial Information, Moody’s Analytics

U.S. Consumer Credit Outlook, August 15, 2018 10

14.5

15.0

15.5

16.0

16.5

17.0

17.5

18.0

18.5

9.5

10.0

10.5

11.0

11.5

12.0

12.5

13.0

13.5

80 83 86 89 92 95 98 01 04 07 10 13 16

Household Burdens Remain Low

Sources: Federal Reserve, Moody’s Analytics

Financial obligations (R)

Debt service (L)

% disposable income

U.S. Consumer Credit Outlook, August 15, 2018 11

0102030405060708090100

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

96 98 00 02 04 06 08 10 12 14 16 18

Few Refis, but Cash Extracted

Sources: Freddie Mac, Mortgage Bankers Association, Moody’s AnalyticsCopyright© Mortgage Bankers Association, Feb 2013. All Rights Reserved.

% with cash out (R)

Refi app., 3/16/1990=100 (L)

U.S. Consumer Credit Outlook, August 15, 2018 12

-25

-20

-15

-10

-5

0

5

10

15

12 13 14 15 16 17 18

Credit cardAutoOther non-mortgage

Lending Standards Being Tightened

Sources: Federal Reserve, Moody’s Analytics

Net % tightening

U.S. Consumer Credit Outlook, August 15, 2018 13

-4

-2

0

2

4

6

8

10

12 13 14 15 16 17 18F 19F 20F 21F 22F

DurablesNondurablesServices

High Rates Threaten Big-Ticket Spending

Sources: BEA, Moody’s Analytics

Real spending, % change yr ago

U.S. Consumer Credit Outlook, August 15, 2018 14

9.09.5

10.010.511.011.512.012.513.0

06 07 08 09 10 11 12 13 14 15 16 17 18

$12.4 $12.8

Household Debt Sets a New Record*

Sources: CreditForecast.com, Moody’s Analytics

Real 2006$, controlling for inflation

Nominal

Total balance, $ tril

*In Nominal $

U.S. Consumer Credit Outlook, August 15, 2018 15

-20

-15

-10

-5

0

5

10

15

20

10 11 12 13 14 15 16 17 18 19F

First mort Bankcard HelocRetail Auto StudentCons fin

Growth Expected to Continue Balances on open accounts, % change yr ago, 6-mo MA

Sources: Equifax, Moody’s Analytics

U.S. Consumer Credit Outlook, August 15, 2018 16

3,500

4,000

4,500

5,000

5,500

6,000

6,500

0

40

80

120

160

200

240

06 07 08 09 10 11 12 13 14 15 16 17 18

HELOC (L)Bankcard (L)CF revolving (L)Retail (L)Retail sales (R)

Revolving Credit Financed Spending

Sources: Equifax, Census Bureau, Moody’s Analytics

New credit issuance, $ bil

U.S. Consumer Credit Outlook, August 15, 2018 17

05

1015202530354045

05 06 07 08 09 10 11 12 13 14 15 16 17 18

700+ 620-699 300-619, missing

Originations Across Products Good QualityTotal originations by credit score by qtr, accounts, mil, 12-mo MA

Sources: Equifax, Moody’s Analytics

U.S. Consumer Credit Outlook, August 15, 2018 18

Credit Scores High but Differ Regionally

Sources: Equifax, Moody’s Analytics

2018Q2

Average Vantage Credit Score

699 - 743683 - 699663 - 683630 - 663

U.S. Consumer Credit Outlook, August 15, 2018 19

-60 -40 -20 0 20 40 60

Student loanFirst mortgage

HELOANAll products

Cons. finance installmentHELOC

Auto financeAuto bank

Cons. finance revolvingBankcard

Retail card

Improvement Not Uniform Across ProductsAnnual change in total $ delinquency rate, 2018Q2, bps

Sources: CreditForecast.com, Moody’s Analytics

U.S. Consumer Credit Outlook, August 15, 2018 20

0.3

0.5

0.7

0.9

1.1

1.3

1.5

07 08 09 10 11 12 13 14 15 16 17 18

Bankcard Retail card

Card Delinquencies Rise90 days delinquent, % of outstanding balance, 12-mo MA

Sources: Equifax, Moody’s Analytics

U.S. Consumer Credit Outlook, August 15, 2018 21

-15

-10

-5

0

5

10

15

20

June-16 June-17 June-18

810-850 620-659 580-619530-579 300-529 Total

Retail Cards Expected to Stabilize

Sources: Equifax, Moody’s Analytics

Retail card outstanding $ by credit score, % change yr ago

U.S. Consumer Credit Outlook, August 15, 2018 22

Retail Card Originations Stabilizing Origination volume by Vantage score 3.0, $ bil, 12-mo MA

Sources: Equifax, Moody’s Analytics

65

70

75

80

85

90

08 09 10 11 12 13 14 15 16 17 180

5

10

15

20

25

30 810-850 780-809 740-779 720-739 700-719 660-699 620-659 580-619 530-579 300-529 % >700 (R)

U.S. Consumer Credit Outlook, August 15, 2018 23

0

5

10

15

20

25

30

35

0

50

100

150

200

250

07 08 09 10 11 12 13 14 15 16 17 18

810-850 780-809 740-779 720-739 700-719 660-699 620-659 580-619 530-579 300-529 % <620 (R)

Auto Lenders Tightening UpOrigination volume by qtr by Vantage score 3.0, $ bil

Sources: Equifax, Moody’s Analytics

U.S. Consumer Credit Outlook, August 15, 2018 24

0

5

10

15

20

25

07 08 09 10 11 12 13 14 15 16 17 18

Student loanResidential totalRetailCF totalBankcardAuto total

Consumer Default Volumes Stabilize Default balances, $ bil, 12-mo MA

Sources: Equifax, Moody’s Analytics

U.S. Consumer Credit Outlook, August 15, 2018 25

0.0

0.5

1.0

1.5

2.0

2.5

3.0

07 08 09 10 11 12 13 14 15 16 17 18

First mortgage Auto totalConsumer finance Student loan

Consumers Delay Pay Off Closed positives, % of $ balances, annual max.

Sources: Equifax, Moody’s Analytics

U.S. Consumer Credit Outlook, August 15, 2018 26

Q&AAdditional questions?

Send an email to help@economy.com or contact:

Deniz TudorDirectordeniz.tudor@moodys.com

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