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US Consumer Credit Debt Climbs Less Than Expected in March

US Consumer Credit Debt Climbs Less Than Expected in March

Peter Hanks, Strategist

Talking Points:

  • The report revealed a seasonally adjusted annual increase of 3.6%
  • Revolving credit, mainly credit cards, fell 3% marking the second consecutive drop
  • Markets remain driven by geopolitical concerns but excess leverage remains a risk

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The March report for US consumer credit may prove to be a point of concern for consumer confidence, as consumer credit notches a second consecutive month of lower than expected increases. The report revealed consumer credit climbed by $11.62 billion compared to expectations of $16.0 billion and a previous gain of $10.60 billion. Revolving credit proves again to be a noteworthy figure, declining the most since the end of 2012. Consumer credit is not only a noteworthy consumption indicator when measuring economic growth, but it also reflects upon over-extended leverage which can contribute to market destabilization if excessive.

The slower increase in consumption can be attributed to a few things but primarily the slowdown was most prominent in revolving credit, also observed in the previous month’s report. In total, the first quarter marked a 0.9 percent annualized decline in credit-card debt outstanding, contrasted with the 10.3 percent surge in the final three months of 2017. This steep decline provides worrisome insight for consumer confidence, a metric due to be released this Friday with the University of Michigan Consumer Sentiment report. While consumer credit and revolving credit continue to decline, non-revolving credit like student and auto loans grew 6%. This month’s increase in non-revolving credit marks the third consecutive month of gains around that level. Lending by the federal government, mainly used for student loans, rose by $2.1 billion in March before seasonal adjustment. Similarly, student loan balances climbed $30.4 billion in the first quarter. Continued contributions from auto loans resulted in an increase of $9.1 billion in the January-March period.

While the data may provide a worrisome sign for consumer confidence, consumption still maintains multiple tailwinds heading into the second quarter. As gains from tax cuts finally start to materialize in paychecks and employment reaches record lows, consumers have all the tools they need to increase or continue spending. Similarly, wage gains continue to climb, albeit erratically. Despite the report providing meaningful information about the state of the US consumer and economy, markets remain dominated by geopolitical concerns like President Donald Trump’s decision on the Iran nuclear deal due Tuesday at 18:00 GMT according to a recent announcement.

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