Consumer Credit Plunge: Will May Jobs Increase Make a Difference?

By at 5 June, 2020, 12:56 pm

by Raymond J. Keating-

On June 5, the Federal Reserve reported consumer credit numbers for April that lined up with the collapse in jobs and consumer spending in March and April.

The Fed reported that consumer credit overall declined by a seasonally adjusted annual rate of 19.6 percent in April. That came after a 3.3 percent decline in March.

In terms of the two major components of consumer credit, revolving credit (mainly, credit card debt) outstanding tumbled by 64.9 percent in April, after a drop of 28.6 percent in March.

Source: Federal Reserve Bank of St. Louis, FRED

Meanwhile, nonrevolving credit (i.e., motor vehicle and other loans not included in revolving credit, such as loans for mobile homes, education, boats, trailers, or vacations – excluding real estate loans) declined by 4 percent in April, after an increase of 5.7 percent in March.

These numbers obviously reflect the dramatic decline in employment, and rise of uncertainty relating to COVID-19 and the governmental responses.

As noted in previous pieces, consumers take their cues from what’s happening in terms of business hiring and investment. When millions of jobs were quickly lost and businesses reined in investment, consumers naturally reacted.

Looking ahead, the question focuses on the May employment report, which showed that 2.5 million jobs were added: Will the rise in jobs in May start a trend, indicating that some kind of recovery is taking hold?

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


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