U.S. consumer borrowing surged by $35.3 billion in May as Americans, bolstered by a reopening economy and rising job levels, went back to using credit in a big way. Borrowing on credit cards and for auto and student loans showed solid gains in May. It marked the fourth straight month of strong growth in consumer borrowing and followed an April advance of $20 billion. Lenders are meeting the moment and are, of course, very happy to lend.
With vaccinations readily available in the U.S. and the economy reopening, many Americans are newly confident in the economy after hunkering down last year. They are splurging on cars, vacations and eating out. Higher prices, especially for cars and trucks, have also stoked loan demand.
Future Wealth’s View
If there was ever a sequence of events that could bring a perfect storm of the pandemic to an end, it is the recovery of the US economy and, consequently, the US stock market. And the consumer is behind it all. Households were sitting on a collective $4.1 trillion in savings in the first quarter, up from $1.2 trillion before the pandemic began. As the vaccination levels increased, there was a perceptible increase in consumer spending. We, at Future Wealth, fully expect this to continue into 2H:21. Ample savings and rising consumer optimism are giving businesses the confidence to bet on the future as well. Business investment rose 2.4 percent in the first quarter and is now above its pre-pandemic level. Of course, unconstrained borrowing could eventually come to haunt us all. But, we will have cross that bridge at a later date.
In the meantime, all of this borrowing and spending bodes well for the investors. Markets are surging higher and there is little reason to park money in the bank. Either spend or invest. Both are equally satisfying choices – only one is near term and other is long term.