Consumers continue to borrow more
May 02, 2014 Missy Rogers
Between student loans, mortgages and car payments, consumer credit data is showing just how much United States citizens have borrowed in recent months. The economy experienced a general upswing in Q1 of 2014, as manufacturing, transportation, merchandising and numerous other industries witnessed increased investment. Therefore, constituents are becoming more confident and are beginning to spend more than previously anticipated.
Obtaining an education
However, just because the marketplace is improving, that doesn't mean students are able to pay for secondary education independently. According to a report released by the Federal Reserve Bank, consumer borrowing increased in February with undergraduates leading the way. Though credit card debt was cited in the results, it didn't rise as much as economists expected. Overall, consumer credit grew at a seasonally adjusted annual rate of 6.5 percent.
The FRB reported that while constituent spending consists of nearly 70 percent of all economic activity, the willingness to accumulate debt in order to fund miscellaneous purchases shows that many people are returning back to work. However, the fact that student loans are spearheading this debt collection fad may be misrepresenting the health of the U.S. market.
In an interview with Main Street, Fordham University economics professor Robert Batemarco claimed that many young people believe a college education is necessary in order to advance their positions in life, essentially meaning that they're willing to borrow large sums in order to obtain a degree. In addition, this trend may indirectly lower demand for other goods and services.
"I think that because such a large portion of student loans is subsidized by the government, a great deal of it is crowding our spending on other things," said Batemarco, as quoted by the source. "I believe that most of the 'demand' it stimulates is offset by a similarly-sized reduction in demand in other parts of the market.
A positive atmosphere
Aside from education, Bloomberg noted that those participating in the labor force are more confident than they were during the onset of 2008's Great Recession. Commercial credit reports conducted by the source showed that gains in employment, mortgage values and stock portfolios are largely contributing to more robust balance sheets, burgeoning confidence throughout various industries.
Mike Englund, chief economist at Action Economics, told the source that a 0.3 percent average income growth is giving citizens the resources necessary to take out loans for large purchases, such as new cars or household additions.
"Consumer credit is keeping track with the slow but positive growth we've seen in consumer spending throughout the cycle and in household spending in the first quarter," Englund informed Bloomberg.
Economists believe U.S. economic activity will rise by 2.7 percent over the course of this year. Due to the general health of the market, many business professionals are anticipating a general decrease in people seeking alternative credit.