The biggest component of an economic recovery is increased consumer spending, and that’s why the latest update from the Federal Reserve on credit balances is considered a big positive.
Americans’ loan debt — not including mortgages and equity lines of credit — jumped by $28.91 billion in September, or 10 percent at an annualized rate, and that’s much more than Wall Street was forecasting.
It’s also a monthly record (not adjusted for inflation), fueled mostly by increased borrowing on cars and trucks, and college tuition via student loans. The Fed has kept a tally on consumer credit since 1941. But loans secured by real estate are not included in the monthly updates.
September’s borrowing followed a gain of $16 billion in August, lifting total consumer credit borrowing to an all-time high of $3.5 trillion.
Revolving credit, essentially purchases made on credit cards, totaled $925.2 billion of this at the end of September, recording an increase at an annual rate of 8.7 percent.
Nonrevolving credit composed of mostly car loans and borrowing for college, recorded a jump at an annual rate of 10.5 percent. Auto loans, which are configured quarterly, totaled $1.03 trillion at the end of the third quarter, up from $998.1 billion at the end of second quarter. Student loans outstanding totaled $1.303 trillion at the end of the third quarter. That’s up from $1.273 trillion at the end of second quarter.
Over the last few years, consumer credit has been expanding about a little over 5 percent per month, following a significant downturn in following the 2007-2008 financial crisis and subsequent recession.
All in all, it’s good news for the economy for now — at least until, or if, consumers become overburdened by debt and high loan balances spurs a pullback in spending.