Consumer credit is a key consumer sector indicator
Strong credit card loan growth in May confirmed gains for retailers like Family Dollar Stores (FDO), Amazon (AMZN) and Walmart (WMT). Growth in consumer credit is a key consumer sector indicator. Retailers gain when consumer credit expands. ETFs like the Consumer Discretionary Select Sector SPDR Fund (XLY) and the State Street SPDR S&P Retail ETF (XRT) track the performance of the consumer sector in the US.
Consumer credit report
The Federal Reserve Board of Governors released their report on consumer credit for May on Wednesday, July 8. Consumer credit represents the dollar value of consumer installment credit outstanding. The headline number is the total consumer debt. It measures the debt level of private individuals. The consumer credit report is also important because it helps estimate the spreads consumers pay above the federal funds rate.
The report classifies the total debt outstanding as revolving and non-revolving. Revolving debt is renewable without approval from the lender—like credit card debt. In contrast, non-revolving debt includes debt like student loans and car loans.
Consumer credit rose by $16.1 billion in May
Consumer credit rose by $16.1 billion in May following a revised gain of $21.4 billion in April. Gains for revolving credit—up by $1.6 billion in the month—point to strong credit card use. Non-revolving credit—up $14.5 billion—continues to be driven by car loans as well as the government’s acquisition of student loans.
Job and consumer sector indicators continue to strike a positive tone—building the Fed’s confidence towards a rate hike in September. The housing market is also showing some improvement with the weather warming up in the US.