Aug 27, 2015 Walt Wojciechowski
Consumers are borrowing at increasingly higher rates than in previous years, an indication of relative stability within the economy. Stingy spending dominated the past half decade, dating back to the beginning of the economic collapse, but people are beginning to borrow and spend with confidence once again as financial conditions have improved markedly.
Two of the biggest economic stimulants can be directly traced back to consumers in the forms of borrowing and spending. Loans are more available now than they have been in recent years, and for the first time in quite a while, many Americans have spare money to spend on commercial products.
Total consumer credit just experienced a big surge
The Federal Reserve reported a $16.1 billion increase in total credit in May, which is the most recent month with available figures. Bloomberg contributor Erin Roman attributed this growth to more affordable financing options that are now available to consumers, as well as an improved job market. In addition, the Federal Reserve noted that non-revolving debt - consisting of categories such as auto and student loans - saw a jump of $14.5 billion in May, indicating strength in the lending market.
Roman pointed out that as the domestic economy has rebounded from the recession in recent years, consumers have become more amenable to the idea of taking on debt to finance education or a new car. Since interest rates are generally low at the moment, the author said that loans are now affordable and accessible.
Another key factor in the stabilization of the economy and subsequent rise in consumer credit has been the gradually decreasing number of jobless Americans. Roman cited Labor Department data that revealed 223,000 jobs were added in June, and the unemployment rate is down to 5.3 percent - the lowest it has been since 2008, at the dawn of the financial crisis.
Spending is also on the rise due to increased job stability
Reuters economics contributor Lucia Mutikani wrote that, despite businesses spending less on equipment in Q2, strong consumer purchasing offset these deficiencies and helped contribute to an overall 2.3 percent increase in GDP in comparison to last year. Mutikani asserted that this momentum could spur the Federal Reserve to raise interest rates for the first time in years due to domestic financial stability.
Lower gas prices may have contributed to recent economic growth, according to the author, as consumers saw savings at the pump and were able to spend more money on goods. Overall, the U.S. saw a 1.5 percent growth in its economy in Q2, and Mutikani suggested that the diversity in spending, as well as the relatively strong job market, indicates a stable climate. The low unemployment rate is a good sign for continued growth in credit and GDP, as many Americans may feel more comfortable now than they have in recent years.
In addition, the total volume of consumer spending warranted optimism - Mutikani reported that this sector expanded at a 2.9 percent clip, up from 1.8 percent growth in Q1. She noted that consumer spending accounts for more than two-thirds of domestic economic activity, a fact that can explain the recent uptick in GDP.
Consumers are willingly taking on more debt and spending more on commercial goods because of financial stability throughout the domestic market. Low interest rates can be appealing to prospective borrowers, and this has been proven in the sizable increase in consumer credit. This is good news for both lenders and borrowers, as distribution of capital can lead to further spending and economic stimulation.