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Tuesday, August 4, 2020

In A Big Win For Trump Administration Relief Efforts, Consumer Borrowing Sank While Spending Grew in May

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Consumer borrowing fell at a much slower pace in May after an enormous decline in April.

Consumer borrowing declined at a 5.3 percent annual pace in May, compared with the 20 percent decline the prior month, according to Federal Reserve data released Wednesday. Revolving credit, mostly credit cards, fell at an annual rate of 28.6 percent, a slower decline than the 64.8 percent decline in April.

Total consumer credit dropped by an annual rate of $18.2 billion in May, compared to a $70.2 billion nosedive in April.

Declines in consumer credit are associated with economic contractions as consumers rein in spending and attempt to save for hard economic times.

But consumer spending rose 8.2 percent in May, even as both income and borrowing fell, a very unusual pattern.

It is likely that the enormous government expenditures aimed at keeping the economy afloat played a role. Unemployment currently pays millions of Americans more than they earned while working and in April the government issued relief payments to hundreds of millions of taxpayers. As a result, income rose an unprecedented 10.8 percent in April even though tens of millions of Americans had lost their jobs and many businesses were shuttered.

Households with additional income from relief and unemployment benefits may have spent that income and reduced reliance on credit cards, fortifying household balance sheets. Most economic policy wonks would count that as a strong win for the U.S. government’s relief efforts.




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