US private sector credit impulse

This page is about the credit impulse, which is the change in the rate of net new lending. The main question is the effect of credit conditions on the health of the private sector economy.


21 Jun 2012.

The credit impulse, which is closely correlated with changes in business and household spending, was quite positive in the last few quarters, and suggests that decent growth continues.


21 Jun 2012. Data through Q1 2012.

For the first graph:

Net borrowing was taken from the Flow of Funds, as the seasonally adjusted quarterly change in credit market instrument liabilities, summed over the sectors (1) Households and nonprofit organizations, (2) Nonfarm nonfinancial corporate business, (3) Nonfarm noncorporate business, and (4) Farm business.

Real private demand was taken as the sum of lines 2 (Personal Consumption Expenditures) and 7 (Gross private domestic investment) in NIPA table 1.1.6.

For the impulse calculation, net borrowing in a quarter was expressed as a percentage of nominal GDP for that quarter, from NIPA table 1.1.5. The year-to-year change in this percentage was then compared to the year-over-year percent change in real private demand.

For the second graph:

Data were taken from the H.8 statistical release of the Federal Reserve. Data are adjusted for changes in accounting (e.g. banks acquiring assets from acquisitions of non-banks) and for seasonal effects. Note however that it is impossible to adjust for charge-offs.


Credit impulse background (13 Jun 2011) Spending is a flow, and should be compared with net new lending, a flow, rather than credit outstanding, a stock. Hence changes in spending are dependent on changes in net new lending or, equivalently, on the acceleration of credit.

Michael Biggs, economist at Deutsche Bank, introduced this idea in Nov 2008 and, by analogy with the well known concept of fiscal impulse, defined “credit impulse” as the “the change in new credit issued as a % of GDP”. Since 2008, it has been shown, for many time periods and many countries, that private sector demand is very closely correlated with private sector credit impulse. This explains a number of conundrums missed by those who focus on the credit stock.


  • Bank credit data is from the Federal Reserve H.8 release
  • GDP-related data is from the NIPA tables
  • Overall private sector credit is from the Flow of Funds

See also

Clippings below were used in the construction of this page