Meet the Author

Yuliya Demyanyk |

Senior Research Economist

Yuliya Demyanyk

Yuliya Demyanyk is a senior research economist in the Research Department of the Federal Reserve Bank of Cleveland. Her research focuses on analysis of the subprime mortgage market, on the roles that financial intermediation and banking regulation play in the U.S. economy, and on analysis of financial integration in the United States as well as in the European Union.

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Meet the Author

Matthew Koepke |

Research Analyst

Matthew Koepke

Matthew Koepke is a former research analyst in the Research Department of the Federal Reserve Bank of Cleveland.

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Emily Burgen |


Emily Burgen

Emily Burgen is a former research analyst in the Research Department of the Federal Reserve Bank of Cleveland.

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Economic Trends

A Tale of Two Types of Credit

Yuliya Demyanyk, Matthew Koepke, Emily Burgen

Since the financial crisis in late 2008, the level of total real consumer credit outstanding has fallen 4.5 percent. While it has recaptured some of the ground it lost during the recession, growth has not been equally split between revolving and nonrevolving credit, its two components. In fact, while nonrevolving consumer credit—loans for automobiles, mobile homes, trailers, durable goods, vacations, and other purchases—has expanded past its pre-financial crisis levels, revolving credit—credit card balances and balances on unsecured lines of credit—has declined through the economic recovery.

In general, stable employment and strong consumer confidence drives consumer credit. Unfortunately, nonfarm payroll employment continues to dig itself out of the hole created by the recession, and consumer expectations, while improved, remain subdued.

Since October 2010, payroll employment has expanded for 21 consecutive months, adding 3.2 million employees to nonfarm payrolls. Nevertheless, the payroll gains garnered during the past 18 months amount to roughly 40 percent of the jobs lost from the beginning of the recession in December 2007 to its end in June 2009.

Moreover, the shaky employment situation has resulted in subdued consumer expectations. According to the Conference Board’s June index of consumer confidence, consumers have low expectations for job and income growth over the next six months. Only 14.1 percent of consumers expect more jobs to become available over the next six months and only 14.8 percent of consumers expect their income to grow.

While slow growth in nonfarm payroll employment and subdued consumer expectations may explain why revolving credit has declined through the economic recovery, they do not explain why nonrevolving credit has expanded. One potential explanation may be that many consumers had to put off the purchase of large-ticket items, such as cars, during the recession, and now they feel comfortable making such purchases. Data suggest that there is pent-up demand for cars. According to R.L. Polk, the average age of light vehicles on the road reached 10.8 years in 2011, a record high since the company began keeping data on vehicle age in 1995. As the economy recovers and consumer balance sheets continue to heal, consumers are likely to replace the durable goods they put off purchasing during the recession.

The household financial obligation ratio suggests that households that put off large purchases during the recession are in a better position to make those purchases now. As of the first quarter of 2012, the ratio, which measures a household’s financial obligations relative to its disposable income, has fallen for 12 consecutive quarters to its lowest level since June 1984. Such a low ratio may mean that consumers have repaired their balance sheets to the point where they feel comfortable in financing large purchases again.