Why is Consumer Credit Not Affecting The Markets?

The August U.S. Consumer Credit report came out a few minutes ago, and it came in well below expectations, as consumer credit fell $9.5 billion, versus estimates of a gain of $8.0 billion.

This is the largest drop since April 2010, with both revolving and non-revolving credit declining. Non-revolving credit, which includes items like auto loans, personal loans, and student loans dropped $7.2 billion or 5.2% in August. Revolving credit, which is generally seen as credit-card debt, fell $2.3 billion or 3.5% in the month.

This is a six standard deviation, and is the largest month on month contraction in over thirteen years. The last time consumer credit fell this much was May 1998.

So why are the markets getting a bid after the lack of spending in the economy?

It could be a number reasons. The market is seeing the consumer de-leverage so much that the market is looking for a healthier consumer going forward. It could also be ignoring any numbers from August, as the U.S. consumer was deeply impacted by the infighting going on in Congress, as well as the U.S. credit downgrade by S&P. The last reason could be the fact that with a slowing consumer, the market may be looking ahead to the Federal Reserve's willingness to continue to pump money into the economy amidst a slowing consumer.

Federal Reserve Chairman Ben Bernanke has repeatedly said that the Fed would do whatever is necessary to help jump-start the economy, potentially meaning another round of quantitative easing could be at hand if we continue to see consumer credit numbers like this.