This month’s Federal Reserve consumer credit release showed that household borrowing had grown at a seasonally adjusted rate of 8.5% in August, the fastest rate in a year, up from 5.9% in July. The surge represented a $25.9 billion rise in total consumer spending to $3.69 trillion, and occurred as demand for everything from cars to education and credit cards picked up.
Revolving credit grew at an annual rate of 7% to $974.6 billion, while non-revolving credit rose 9%, or $20.2 billion, to total $2.71 trillion. Federal government holdings of student loans comprise the greatest share of non-revolving credit, representing a 38% portion of outstanding credit, while depository institutions and financial companies are the second and third largest, respectively.
Greater willingness to borrow on the part of American consumers, with decent consumer balance sheets, points to confidence about future earnings, driven by steady income and job growth. Indeed, the economy added 156,000 new jobs in September, posting another month of steady gains, although the figure was slightly lower than previously forecast. Unemployment grew slightly from 4.9% to 5% as more discouraged workers re-entered the market looking for work, though overall, unemployment claims remained at 40-year lows. Wages also increased 2.6% in September, compared to a year ago, overtaking the inflation rate.
“It turns out that Goldilocks is real: The labor market is not too hot and not too cold,” says Douglas Holtz-Eakin, a former director of the Congressional Budget Office, according to CNN Money.
In combination, job growth, income growth, and increased household borrowing, all suggest that the consumer discretionary sector, including retailers, car manufacturers, and other domestically-oriented consumer industries, may be poised for a moderate recovery. The increases in the stock prices of GM, Ford, and Gap, also support this view.