Average revolving credit per person is on the rise as income remains flat in worrying trend
According to borrower data from Lending Club ($NYSE:LC), the average revolving credit per borrower on the peer-to-peer lending site has gone up roughly $3,000.
Put simply, it's a sign that people are taking on more debt. On its own, that's not a terribly surprising trendline. But in the same data is a flat line when looking at the average income of those same borrowers. To some analysts, this is a pre-crash signal: as consumers take on more debt and bills pile up, defaults increase and banks put the brakes on lending.
These time series come via data we've collected over time via Lending Club that, as of 2017, had $4.64 billion in assets. While these numbers don't provide a macro look at the economy — or lending overall — they do show some curious trends from a relevant sample that are worth a deeper look.
Average Revolving Credit Per Borrower accelerating
According to the Federal Reserve's Consumer Credit release, consumer revolving credit debt has reached $1.055 trillion, a $197 billion increase since 2013 alone.
On a per-borrower level, data shows that the trend has picked up in the past year. Average revolving credit per borrower at the time of loan request was $14,900 in May 2018. By May 2019, that number has reached $17,900.
Deb and Income out of sync
The average debt-to-income ratio for borrowers has also accelerated in the past few years. In July 2016, the ratio was at 19%. By February 2018 it spiked to 49.8% and has since settled at 39% as of this month. This is a sign that borrowers are using more credit and paying off less. But it's also a sign that income isn't keeping pace with debt.
While the average income of borrowers was on a steady increase through 2016, it has since stagnated, despite the fact that consumers are borrowing more.
Herein lies the problem with increasing revolving credit per borrower as introduced above: if credit lines are soaring and income is flatlining, something's gotta give.
(Do note that the April 2019 income number drops precipitously as those numbers are still coming in.)
With that, here are some sobering numbers from the Quarterly Report on Household Debt and Credit from the Federal Reserve of New York:
Aggregate household debt balances ticked up in the fourth quarter of 2018 for the 18th consecutive quarter, and are now $869 billion (6.9%) higher than the previous (2008Q3) peak of $12.68 trillion. As of December 31, 2018, total household indebtedness was $13.54 trillion, a $32 billion (0.2%) increase from the third quarter of 2018. Overall household debt is now 21.4% above the 2013Q2 trough.