PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

The Fed’s Latest Consumer Credit Report

By at 14 October, 2019, 9:00 pm

by Raymond J. Keating-

When you look at the GDP data, the story with the consumer actually has been volatile of late. And the latest report from the Federal Reserve on consumer credit point, at least in part, to much the same thing.

Over the last three quarters worth of GDP data, real personal consumption expenditures were lackluster in the fourth quarter 2018 and first quarter 2019, with growth of 1.4 percent and 1.1 percent, respectively. However, consumer expenditures jumped by 4.6 percent in the second quarter 2019. In fact, given the decline in investment and trade, private sector growth in the second quarter was all about the consumer.

So, what does the Fed’s latest consumer credit report show?

Overall, total consumer credit (seasonally adjusted, annualized and excluding loans secured by real estate) grew by a solid 6.7 percent in July and 5.2 percent in August. Breaking those numbers down a bit, nonrevolving credit (such as motor vehicle, education, boat and vacation loans) grew by 5.4 percent in July and 7.8 percent in August.

However, revolving credit (mainly, credit cards), after a 0.8 percent decline in June, jumped by 10.5 percent in July and then fell by 2.2 percent in August.

From a business standpoint, especially retail, the consumer obviously warrants close watching. At the same time, though, it’s important to keep in mind that the consumer largely is a follower. As SBE Council has noted before, if business is investing, expanding and creating jobs, then the consumer is happy and spending.

Currently, key signals for consumers are split. While the jobs market is tight, business investments has slowed (in fact, slowing over the past year, including a decline in the second quarter 2019 GDP data).

Contrary to what often is communicated by pundits in the media, the consumer is not an economic leader. The consumer follows, and we need to see stepped up business investment to keep the consumer happy.

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

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