Consumer Credit Grows On Eased Lending Standards

5/9/16 – My 2¢: positive sign for the economy and housing market. Given lackluster wage growth and meager savings rate, consumer credit is the engine to economic growth.  It signals an optimism by consumers to open their wallets and spend, leading to further spending and eventually larger purchases such as homes. A positive correlation has been shown between car purchases and home buying, with a brief time lag between the two.  Read on for the particulars of the story.

The Federal Reserve Board reported that consumer credit outstanding grew by a seasonally adjusted annual rate of 10.0% over the month of March 2016, 5.2 percentage points faster than its growth rate in February. Over the first quarter of 2016, consumer credit outstanding expanded by 6.4%, 0.2 percentage points ahead of the 6.2% rate of growth in the fourth quarter of 2015.

There is now $3.59 trillion in outstanding consumer credit, split between revolving($952 billion) and non-revolving($2.64 trillion) consumer credit. Outstanding revolving credit, which is largely composed of credit card debt, grew by 14.2% on a seasonally adjusted annual rate over the month of March. Over the quarter, revolving credit outstanding expanded by 5.9%.

Non-revolving consumer credit, which includes both student and auto loans, grew by 8.5% on a seasonally adjusted annual rate over the month of March. Over the quarter, non-revolving credit outstanding expanded by 6.6%.