Consumer Credit

Each day the Research staff takes a look at recently released economic indicators, addressing what these indicators mean for REALTORS® and their clients. Today’s update discusses consumer credit.

• After a sharp contraction in August, data from the Fed shows that consumer credit expanded in September, growing by 3.6 percent (SAAR-Seasonally Adjusted Annual Rate).
• By type of credit, revolving credit, such as that on credit cards, declined at a 1.0 percent rate while non-revolving credit, such as that on car loans, mobile homes, education, boats, trailers, or vacations, grew by 5.8 percent. Mortgages and other credit that is secured by real estate is not covered by this data.
• From one year ago, there is a 2.5 percent greater amount of credit outstanding. Most institutions, such as commercial banks, finance companies, and credit unions, have reduced the amount of outstanding credit they are holding. Only the government, savings institutions, and nonfinancial businesses have expanded their credit outstanding.
• Since real estate loans are typically not covered by this data, how does it relate? Changes in the amount of credit outstanding are an indicator of the balance of consumer appetite for credit as well as banks' willingness to lend. A swift expansion of credit indicates strong consumer demand and banks' willingness to lend. Expect this to turn into robust economic growth. Weak to moderate expansion in credit may signal weaker growth ahead.
• Credit expansion in September was much better than August, but lags a bit behind rates seen in June and July. It is enough to signal a recovery in supply and demand of credit from August’s weakness, but not an indicator of an overwhelmingly strong future expansion.
• Separately, a survey of bank lending officers showed that bank standards were mostly unchanged in October, though some banks indicated easing. When asked about household loan demand, bank officers typically reported no change in October, though some indicated greater or weaker demand. This suggests that there may be a further small expansion in consumer credit in October.