The Latest Consumer Credit Report
By SBE Council at 12 April, 2017, 7:51 am
by Raymond J. Keating-
According to the Federal Reserve’s consumer credit report for February, released on April 7, consumer credit (which excludes real estate loans) experienced solid growth.
Revolving credit (mainly, credit card debt), after a decline of 3.2 percent in January, grew by 3.5 percent (seasonally adjusted annual rate) in February. It’s also worth noting that the 6.5 percent growth in 2016 was the strongest since before the credit meltdown.
Meanwhile, nonrevolving credit (defined as including “motor vehicle loans and all other loans not included in revolving credit, such as loans for mobile homes, education, boats, trailers, or vacations”) grew by 5.3 percent in February, which followed on 5.9 percent growth in January, and 6.5 percent for 2016.
Putting this in a longer-term perspective, while consumer credit outstanding plummeted during the 2007-09 recession, nonrevolving credit had recovered to its pre-credit meltdown level by mid-2010, and has subsequently grown (with a significant chunk of growth accounted for by student loans). In contrast, revolving credit still has not returned to its high set in April 2008.
In the end, consumer credit should not be viewed as a driver of economic growth. Instead, even though consumer spending accounts for some two-thirds of GDP, consumers ultimately are followers. That is, they take their signals from the health and vibrancy of business investment and job creation.
Of course, throughout this recovery, investment and job creation have badly under-performed. Looking ahead, if we see substantive tax and regulatory relief and reform advance, for example, that will incentivize business investment and entrepreneurship – which will be reflected in tangible measures of consumer confidence, that is, consumer spending and consumer credit.
Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.
Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP: The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.