Federal Reserve Q4 2011 Z.1 “flow of funds” report.
The U.S. system enjoyed respectable Credit growth during 2011's fourth quarter. Total Credit Market Debt Outstanding (non-financial and financial) increased $306bn during the quarter to a record $54.134 TN. As a percentage of GDP, total marketable debt declined about 100bps to 353%. This is down from 2009 peak levels of about 375%. It is worth noting, however, that the 300% barrier wasn’t surpassed until 2003. The year 1998 began with total debt already highly elevated at nearly 250% of GDP.
For the quarter, Total Non-Financial Debt expanded at a seasonally-adjusted and annualized rate (SAAR) of $1.867 TN, the strongest debt expansion since Q4 2008 (SAAR $2.123 TN). Debt growth during the quarter of 4.9% compares to Q3’s 4.4%, Q2’s 3.0% and Q1’s 2.3%. Notably, Consumer Credit (non-mortgage) expanded at a 6.9% rate, up sharply from Q3’s 1.4% to the strongest pace in at least five years. For 2011, Consumer Credit expanded 3.5%, the first growth since 2008’s 1.5%.
Corporate (non-financial) debt expanded at a 6.0% pace during Q4, up from Q3’s 4.7%. For the year, Corporate borrowings expanded 6.0%, the strongest growth since 2007’s 13.5%. For comparison, Corporate debt expanded 4.0% in 2010, declined 1.8% in 2009, and increased 4.9% in 2008. In nominal dollars, Corporate borrowings increased $444.9bn in 2011 to a record $7.800 TN, up meaningfully from 2010’s growth of $285bn.
Household mortgage debt continues its steady contraction. For Q4, Household Mortgage Debt fell at a 1.5% rate, the smallest pace of decline since Q4 2009. In nominal dollars, Household Mortgage Debt declined SAAR $150bn to $9.841 TN, down from the Q1 2008 peak of $10.615 TN. For all of 2011, mortgage debt contracted $213bn, or 2.1%. I would expect mortgage debt to post a small advance in 2012.
And while ultra-loose financial conditions have spurred (non-mortgage) consumer credit and corporate debt back to robust growth, these sectors alone provide insufficient Credit growth to sustain the U.S. economy. As it has for the past four years, federal debt continues to dominate.
For the quarter, federal government borrowings increased SAAR $1.321 TN, a 13.1% pace, to a record $10.454 TN. Federal borrowings accounted for 71% of total Non-Financial Credit growth during the quarter, down from Q3’s 85%. Federal debt increased $1.068 TN during calendar 2011, down from 2010’s $1.580 TN, 2009’s $1.444 TN, and 2008’s $1.239 TN. For the year, federal borrowings accounted for 78% of Non-Financial Debt growth, after accounting for more than 100% in both 2009 and 2010.
Total Treasury marketable debt has now doubled in only 14 quarters. Federal government liabilities (that includes non-marketable debt held by various government trust funds) jumped 83% in 14 quarters to $12.282 TN. After beginning 2008 at 47%, federal liabilities have rapidly grown to 80% of GDP (of course, these do not include enormous contingent federal liabilities).
In nominal dollars, federal liabilities increased almost $5.60 TN in only three and one-half years. Over this period, State & Local liabilities increased $900bn, or 32%, to $3.715 TN (24% of GDP). One cannot overstate the impact this unprecedented expansion of public sector Credit has had on national incomes, corporate earnings/cash-flows, state and local finances, GDP and the markets overall (securities and real estate).
National Income increased 4.6% in 2011 to a record $13.428 TN. This growth rate was down slightly from 2010’s 5.7%, but up considerably from 2009’s 3.7% decline and 2008’s 1.7% increase. Total “Compensation of Employees” (Total Comp) increased $103bn during the quarter to a record (annualized) $8.441 TN. The 4.9% annualized growth in Total Comp was the strongest since Q3 2007. Total Q4 Comp was up 4.9% y-o-y ($390bn). For all of 2011, Total Comp increased 4.0%, the strongest gain since 2007’s 5.7%. For comparison, Total Comp increased 2.1% in 2010, declined 3.2% in 2009, and increased 2.7% during 2008.