The latest report from the Federal Reserve Board of Governors on credit utilization, released this afternoon, showed that Americans’ borrowing activity continued to expand in November (lagged release). Specifically, total U.S. consumer credit outstanding rose by $24.5 billion at a seasonally adjusted annual rate of 7.9 percent. That was much better than the $18.5 billion gain economists had expected and the third-largest monthly increase of 2016. Revolving credit, a metric of Americans’ credit card use, jumped by $11.0 billion in November, the best sequential gain since March. Non-revolving credit, e.g. student and automobile loans, lifted by $13.5 billion in November, the 63rd month-over-month increase in a row.
The student loan portion of consumer credit spiked during the “Great Recession” as many Americans responded to the challenging labor market by furthering their education in an attempt to improve their overall employment prospects. In fact, student loans surged by 186.3 percent over the past decade, according to recent data from the Federal Reserve bank of New York, compared to just 3.8 percent for all other forms of debt. On the bright side, the labor market appears to be tightening, which should make it easier for people to find work and eventually see their wages increase. This will not only make it easier for Americans to pay down their student debt but also improve the quality of credit seekers in general, and in turn enable more applicants to obtain funds with more favorable terms. This is supported by another new report from the New York Fed, which found that household expectations of easier credit access one year from now rose in December to a 2-year high. Altogether it appears that the longer-term trends of an acceleration in revolving credit growth and a somewhat stalled expansion in non-revolving credit are still firmly in place.
Sources: Econoday, FRBG, FRBNY, Wells Fargo, FRBSLPost author: Charles Couch