Mixed Data on Consumer Credit

By at 9 August, 2019, 8:37 am

by Raymond J. Keating-

According to the latest consumer credit report from the Federal Reserve, revolving credit (mainly credit cards) declined in June at a seasonally-adjusted, annual rate of 0.1 percent. Overall consumer credit grew by 4.3 percent, with a 5.8 percent increase in nonrevolving credit (which includes “motor vehicle loans and all other loans not included in revolving credit, such as loans for mobile homes, education, boats, trailers, or vacations”).

For the second quarter 2019, consumer credit grew by 4.9 percent, with revolving credit up 5.3 percent and nonrevolving rising by 4.8 percent.

In terms of the state of the consumer, it pays to keep an eye on consumer credit in general – and in this case, the coming movement in revolving credit after the June decline – to gauge confidence. Surveys of consumer confidence are helpful, but the actual data is what matters in the end. That includes the personal consumption expenditures in GDP data, and items like retail sales and consumer credit.

In the latest GDP data, it’s interesting to note that real personal consumption expenditures actually increased by 4.3 percent in the second quarter – the fastest growth rate since the fourth quarter 2017 – while real GDP growth slowed from 3.1 percent in the first quarter 2019 to 2.1 percent in the second quarter 2019. The problem in the second quarter GDP data were declines in business investment and in exports.

The latest retail sales numbers also point to a pick-up among consumers in recent months after a poor performance form August 2018 to February 2019.

Given that consumers are followers – largely taking their cues from what’s happening in terms of business investment and growth, and the general economy – the recent poor data on investment and trade are troubling. Meanwhile, working in the opposite, positive direction have been solid employment numbers.

In a middling economy – growing at less than 3 percent – the data are going to often be conflicting, as some aspects of the economy point to solid growth, and others to sluggishness and questions. But central to growth are business investment and trade, and trouble on that front – largely due to protectionist trade measures and threats from President Trump – warrants close attention. Consumers again will be taking note, and acting accordingly.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.


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