The latest report from the Federal Reserve Board of Governors on Americans’ borrowing activity showed that total U.S. consumer credit outstanding rose by $16.4 billion in March (lagged release) to $3.8 trillion. That was a larger monthly increase than economists had expected but February’s gain was revised lower from $15.2 billion to $13.7 billion. Non-revolving credit, e.g. student and automobile loans, rose by $14.5 billion in March, above the 5-year average and the 67th monthly increase in a row. Revolving credit, which is mostly consumers’ credit cards, lifted by $2.0 billion to $1.0 trillion in March, the best monthly gain since December, albeit well-below the 2016 average.
On a year-over-basis, both measures of consumer credit have moderated recently but the slowdown in revolving credit has been a lot more pronounced. In fact, annual growth in revolving credit has decelerated by almost two full percentage points after peaking in November. At the same time, the personal saving rate, i.e. personal saving as a percentage of disposable personal income, has jumped in this country (+0.7 percentage points in Q1 alone). Altogether this suggests that despite the post-election spike in consumer sentiment and continued strength in the U.S. labor market, Americans have generally become a lot more cautious with their money. That helps explain why real personal consumption (consumer spending) grew in Q1 at the slowest annual rate since 2009. Officials at the Federal Reserve, though, said last week that they believe such weakness is transitory, and many analysts expect to see a significant rebound in growth in subsequent quarters.
Sources: Econoday, FRBG, ZH, Wells Fargo, FRBSLPost author: Charles Couch