Consumer Borrowing Slows Ahead of Holiday Season

Consumer borrowing in the United States slowed more than expected in October, with Americans refraining from increasing their credit card balances heading into the holiday shopping season. This trend is significant for companies like Visa, MasterCard, and big banks such as JPMorgan Chase, Bank of America, and Citigroup, which have been counting on interest rate hikes to boost their net interest margin. However, the weak credit card balance data could also indicate slower transactions and a negative impact on companies like Visa and MasterCard that make their money on transaction fees.

Key Takeaways:

• Consumer credit rose by $16 billion in October, which is less than the expected $20 billion.
• Revolving credit, which is mostly credit card debt, edged up just $179 million in October, the weakest showing since February.
• The Commerce Department's income and spending report showed that consumer spending rose just 0.1% in both September and October.
• Banks such as JPMorgan, Bank of America, and Citigroup have been rallying on hopes that Fed interest rate hikes will boost their net interest margin.
• Weak credit card balance data could indicate a lackluster holiday season for companies like Visa and MasterCard.
• Nonrevolving credit, which includes auto loans and student debt, climbed $15.8 billion in October.
• U.S. auto sales are at long-time highs, with General Motors, Ford, Fiat Chrysler Automotive, and most carmakers faring well.
• Student borrowing remains heavy, contributing to the growth in nonrevolving credit.

Statistics:

• $16 billion: The increase in consumer credit in October, which is less than the expected $20 billion.
• $179 million: The increase in revolving credit, which is mostly credit card debt, in October, the weakest showing since February.
• 0.1%: The increase in consumer spending in both September and October.
• 2.9%: The gain in consumer spending compared to a year earlier, the smallest gain since May 2013.
• $15.8 billion: The increase in nonrevolving credit, which includes auto loans and student debt, in October.
• $2: The price of gasoline approaching, which could impact consumer spending.

Sources:

• Investor's Business Daily, Copyright 2015 Investor's Business Daily, Inc.