Consumer Credit Growth Slows as Interest Rates Fall

Consumer credit outstanding increased at a seasonally-adjusted annual rate of 5.7 percent in the first quarter, according to data released by the Federal Reserve on Tuesday afternoon. Non-revolving credit led the increase with an 8.1 percent gain for the quarter, while revolving credit — credit that is automatically renewed when debt is paid off — was little changed at +0.2 percent. Total outstanding credit was just over $2.8 trillion.

Consumer credit climbed $8.0 billion, or 3.4 percent, on the month in March. Economists were looking for an increase of $15.0 billion. Revolving credit fell 2.4 percent sequentially, while non-revolving credit increased 5.9 percent. This increase in non-revolving credit indicates gains in loans for car sales as well as private student loans. Overall the report was fairly soft, and did not seem to have a material impact on the markets.

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Consumer Credit Outstanding

Source: Federal Reserve

In general, increases in consumer credit indicate growth in economic activity. When consumers borrow within their means in order to purchase car, go to college, or buy a house, the economic engine putters on contently. The obvious downside risk is that when people borrow beyond their means and assume too much debt relative to their income, they may be forced to stop spending simply to pay off debt. This is a negative economic catalyst.

In general, terms of credit have eased over the past few quarters. The interest rates on 48-month new car loans and 24-month personal loans have both fallen below 2012 levels.

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Interest Rates

Source: Federal Reserve

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