Today's Headlines: Consumer Credit Slows In April Hawaii News Now KGMB And KHNL


Consumer Credit and Growth

Hopes are high for strong economic growth in America's near future. President Trump's economic plan hinges on an economic growth rate near 4%, and markets so far are expecting him to be able to deliver at least partially on his promise.

A 4% growth rate will be difficult, if not impossible, to achieve without significant consumer spending and requisite consumer borrowing. Regardless of the tax rate, companies are not going to expand and grow without expecting a corresponding increase in consumer demand. So far, that demand does not seem to be sufficient to meet the President's goals.

Federal Reserve data for April revealed the smallest increase in consumer borrowing in nearly six years. Total consumer credit reached $3.82 trillion in April after seasonal adjustment, for an annualized growth rate of 2.6%. April's consumer credit rise of $8.2 billion represents a significant drop from March's $19.5 billion increase.

Combine this with the relatively stagnant growth in gross domestic product (estimated at 1.2% in Q1 of 2017) and a sharp drop in consumer spending (0.3% in Q1 2017, down from 3.5% in the previous quarter), and we get a potential recipe for growth that is far too slow to meet collective expectations.

Credit Growth Slows Across the Board

Rates of growth in consumer credit slowed across consumer credit categories (mortgages are excluded from the Fed data). The rise in revolving credit, which consists mostly of credit card debt, fell from 6.5% in March to 1.8% in April. Growth in non-revolving credit, covering installment loans such as student loans and auto loans, dropped from 6.1% in March to 2.9% in April.

On one level, that's good news. It's important that consumer debt levels remain manageable to avoid future economic problems, and there have been some troubling signs in that regard. Collective household debt in the first quarter of 2017 passed the pre-recession peak of $12.68 trillion in Q3 of 2008 even with a $15 billion drop in credit card

balances. Student loan debt is reaching dangerous levels, with $1.34 trillion in total outstanding debt in Q1 surpassing all categories of consumer debt except mortgages and total delinquency and default levels on student loan debt have reached 11%.

Continued debt reduction in general would be good news, but not necessarily at the expense of economic growth. Are we looking at a temporary drop in consumer credit instead of the beginning of a trend? Economists seem to think so. Spending is widely expected to rebound in the next quarter, partially balancing out April's decline and positioning spending along the long-term trend line.

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Today's Headlines: Consumer Credit Slows In April - Hawaii News Now - KGMB and KHNL