Bloomberg News/Landov
The numbers: Consumer borrowing expanded at a solid pace for the second straight month, according to the Federal Reserve on Monday. Total consumer credit increased $17.1 billion in May after an almost identical gain in the prior month. That’s an annual growth rate of 5%. Economists had been expecting a $17 billion gain, according to Econoday.
What happened: Revolving credit, primarily credit cards, rose 8.2% in May, just a bit above the 7.9% gain in April. Revolving debt had looked weaker at the start of the year, and actually declined in December and March.
Non-revolving credit, typically auto and student loans, rose 3.9% in May after a 4.2% rise in the prior month. The non-revolving sector is not as volatile as the credit card sector.
Big picture: Consumers are the lone bright spot in the economy outlook, as business investment and manufacturing have been looking weaker. So, the continued growth in credit is seen as a positive sign for growth in coming months. For now, strong job growth, as seen in June, is supporting higher incomes which has led to more spending. And, at least so far, credit growth has not raised any red flags for federal regulators. Household borrowing “remains modest relative to income, and the debt growth is concentrated among borrowers with high credit scores, the Fed said, in a report to Congress on economic trends over the last six months.
Market reaction: Stocks were lower in afternoon trading, in part due to concerns the Fed might not try to stimulate the economy later this month because of the strength seen in the June jobs report. The Dow Jones Industrial Average
DJIA, -0.43%
was down 137 points in afternoon trading.
Source : MTV
