What does the Federal Reserve report regarding consumer borrowing reveal?
It has been revealed in the latest Federal Reserve report published on Tuesday that the rate of growth in annual gains on consumer borrowing in the U.S. has increased at the slowest pace since 2013. It has failed to match up to the street estimates and has become a big area of concern for the lenders.
For the year 2016, borrowing has grown by 6.4% over the previous year. It was also revealed by the report that December witnessed a $14.2 billion credit advance being dished out against a 25.2 billion leap in the month preceding it.
It was also revealed that despite tepid demand in December 2016 for consumer debt as a result of smaller advance in credit-card balance, the data shows that revolving debt which includes credit card borrowings have increased the most on a Y-O-Y basis as well as on a sequential basis, since the historic highs of 2007. However, non-revolving debt despite posting a consistent month-on-month growth all through 2016 has decreased on a Y-O-Y basis. Non-revolving debt includes long-term loans like student loans, auto loans and other flexible loans which have a fixed tenor and a fixed rate of interest. The interest is calculated right at the time of first lending and the consumer usually have to pay a fixed monthly, quarterly or annual installment, as per the agreement.
As per a Bloomberg survey, the forecast was pegged at $20 billion surplus over last year’s total consumer credit. The estimates had varied between 10.6 billion Dollars to about $26 billion. Reading of November figures had been cited to be the advance of about 24.5 billion Dollars which was later revised upwards.
What was the rise in revolving and non-revolving credit on a Y-O-Y basis?
Revolving credit showed a growth of $2.4 billion after the last year’s increase of $11.8 billion. Non revolving debt, on the other hand grew by $11.8 billion following last year’s $13.4 billion gain.
It was further reported that federal lending in 2016 showed a growth of $9.6 billion, mainly on the back of growth in student loans, in the last quarter last year after adjustments made for general variations. Auto loans showed a jump of $12.4 billion on a year-on-year basis. This piece of data reveals that consumers are hoping for cheaper loans and competitive rates as rules on credit checks might be relaxed in the near future and they are willing to borrow for making big ticket investments like car purchase.
It needs to be clarified here that the Federal Reserve’s credit report doesn’t track the debt barred by immovable assets like real estate. Hence, home mortgages and home equity credit lines are excluded from the report.