Picture
The $17.5 billion, 6.7 percent, increase in consumer credit in March sounds good and promising, but further analysis by the Money Anxiety Index (www.moneyanxietyindex.com) shows that the makeup of this increase indicates that consumers are still reluctant o expand credit spending beyond absolute necessities on items such as education and transportation..

Most of the increase in credit, $16.4 billion, was in nonrevolving credit mainly from an increase in student loans and auto loans according to the G-19 credit report from the Board of Governors of the Federal Reserve System. These two loan types represent necessary expenditures and not discretionary spending that typically come with greater economic and financial confidence.  The increase in student-loan debt to over $1 trillion is taking its toll on the economy because it burdens the next generation of consumers with heavy debt that is preventing or delaying their home purchase; an essential driver of the US economy.

The increase in auto loan during March is not a sign of economic recovery or economic strength either.  Further analysis presented in the book Money Anxiety (www.moneyanxiety.com) shows that the increase in car purchases is mainly because consumers delayed replacing their cars during and post the recession.  According to the U.S. Department of Commerce, car sales decreased to a low of $47 billion in March 2009, which was at the tail end of the Great Recession. Now that cars are getting older, and the cost of maintenance is increasing, consumers are forced to borrow money to buy new cars since transportation is an absolute necessity.  Car sales is gradually increasing now mostly as a result of ageing car fleet.


 


Comments


Your comment will be posted after it is approved.


Leave a Reply