Strong Growth Consumer Spending and Borrowing Gives Economy a Boost

Rising rates of consumer spending and borrowing could signal stronger months ahead for the American economy, giving marketers some much needed good news that people are ready to spend their cash, according to a recent Gallup poll and Federal Reserve report on consumer credit.

Daily spending has reached it highest point in six years and more people are willing to take on credit card debt, the highest rate in 12 years. This could indicate American consumers are spending more on essentials now and are preparing to make bigger purchases that require debt in the near future.

Alan Levenson, chief economist at investment firm T. Rowe Price, told the Associated Press that the momentum is likely to continue throughout the summer, thanks to rising employment and income growth, which is making people more comfortable borrowing.

Daily consumer spending hit a six-year high of $98 in May — $10 higher than the month before and $8 higher when compared with May 2013. It’s the largest amount for the month of May since 2008. This acceleration of spending is a positive sign for marketers looking to direct consumers on their purchases.

In April, growth in credit card debt accelerated at the fastest pace in more than a dozen years and showed the strongest growth since Sept. 11, 2001, and the recession that followed.

Here’s a closer look at the numbers:

  • Total borrowing reached a record high of $3.18 trillion
  • Credit card debt was up $8.8 billion—the biggest surge since November 2001, when consumers were being urged to spend to support the national economy following national tragedy

Perhaps the most surprising thing in the numbers was the rise in credit card balances, which represents a reversal of recent trends. With the recession and economic instability during the past five years, Americans had been paying down debt as job losses mounted and employment was stagnant.

As for consumer spending, researchers say shoppers hit the mall in droves over Memorial Day weekend, fueling the highest day-to-day spending figure in years.

Retail sales rose 4.3 percent in May compared with the year before, according to Thomson Reuters data on average sales growth at nine large national retail chains, including Costco and Rite Aide.

While retail sales usually flatten in June and July, analysts expect discounts and promotions on everything from clothing to items for the home to keep shoppers coming. Many are forecasting stronger months compared with summer last year, according to a report in the Los Angeles Times.

Auto sales in May were also hot, rising 11 percent to 1.6 million on the strength of Memorial Day deals and promotions and rising consumer confidence. Big car companies expect the customers to keep coming over the summer.

All in all, the numbers point at stronger cash flow for many American households and suggest that purse strings may be loosening on both day-to-day items and big purchases–good news for the economy and for marketers.

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