News & Events

Economic Advisor: July 18, 2018
July 18, 2018


 

Consumer borrowing saw solid gains, while inflation grew slightly, and lay-offs plummeted.

Consumer Credit

Consumer credit shot up by its biggest gain in six months, growing 7.6 percent in May to hit $3.89 trillion, according to last week’s report from the Federal Reserve. That’s a $24.5 billion gain in consumer borrowing, and it marked the biggest monthly increase since November 2016’s jump of $24.8 billion.

The big driver for May’s increase was due to gains in revolving debt, such as credit cards. Revolving debt grew 11.4 percent during the month to hit a total of $1.03 trillion. Consumer spending drives roughly 70 percent of U.S economic activity, and an increased willingness on the part of consumers to use their credit cards to back their spending is generally considered a good sign.

The other broad category of consumer credit, non-revolving debt, which covers loans such as student and car loans also fared well. Non-revolving debt grew 6.2 percent to hit $2.85 trillion, up from April’s $2.84 trillion. While not as sharp as the increase in credit card use, that 6.2 percent gain marked an acceleration in growth over April’s 3.9 percent gain.

Consumer Prices

Consumer prices grew slightly in June, with the Consumer Price Index notching 0.1 percent in June, the Bureau of Labor Statistics reported last week. This was down from May’s 0.2 percent growth and slightly below the 0.2 percent gain that economists had predicted. That said, core inflation, which ignores the volatile food and energy categories, grew 0.2 percent in June, which was in line with May’s 0.2 gain as well as economists’ expectations.

Price categories that saw solid growth during June included fuel oil, which was up 2.9 percent; gasoline, which saw a 0.5 percent gain; medical care, which grew 0.5 percent; used cars and trucks, which increased 0.7 percent; and new vehicles, which were up 0.4 percent. Notably, prices for electricity services were down 1.4 percent; gas utility prices declined 1.7 percent; and apparel prices fell 0.9 percent.

Will these price gains prompt the Federal Reserve to step in and increase interest rates in order to keep inflation in check? Probably not in the near term, especially considering it just increased them in June.

“While we continue to expect the next hike in September, even the hawks may sound more comfortable with the current gradual tightening pace,” JPMorgan Economist Michael Feroli told the Reuters news service.

Initial Jobless Claims

First-time claims for unemployment benefits filed by laid-off Americans during the week ending July 7 tumbled to 227,000, a fall of 18,000 claims from the preceding week’s total of 232,000, the Employment and Training Administration reported last week. This was well below than the 226,000 unemployment claims that job market watchers had anticipated. 

Meanwhile, the four-week moving average — regarded as a more reliable measure of initial jobless claims — ticked down to 223,000, a dip of 1,750 claims from the prior week’s average of 224,750. Last week’s report also marked the 175th week in which initial claims were below the 300,000-claim level, which economists consider an indicator of a growing job market.

This week, we can expect:

  • Monday — Retail sales for June and business inventories for May from the Census Bureau.
  • Tuesday — Industrial production and capacity utilization for June form the Federal Reserve.
  • Wednesday — Housing starts for June from the Census Bureau and the Department of Housing and Urban Development.
  • Thursday — Initial jobless claims for last week from the Employment and Training Administration.

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