Cautious Credit and Volatile Markets
- The economy is stronger than expected: Real GDP surged at an annual rate of 2.8% in the second quarter of 2024, far surpassing the 2% growth expectation. Growth was driven by robust consumer spending and a notable 11.6% increase in nonresidential investment in equipment.
- Credit growth is slowing: Consumer credit grew modestly in June and for Q2, perhaps a sign that consumers are running out of steam. Consumer credit increased 2.1% on a seasonally adjusted annual rate in June and 2.4% on SAAR in Q2. Revolving credit, such as credit cards, decreased by 1.5% SAAR in June, while nonrevolving credit, such as car and student loans, increased 3.4%.
- Banks remain cautious and are keeping lending conditions tight: The July Senior Loan Officer Opinion Survey reported continued tightening of lending standards across various loan categories, especially for riskier commercial and industrial loans. Despite these tighter conditions, demand for commercial and industrial loans remained stable, reflecting businesses’ cautious approach amid economic uncertainty.
- Market volatility is up: After significant market swings last week, financial markets remain jittery. This volatility is likely to persist at least in the short term. Markets are highly sensitive right now, reacting sharply to even minor economic news—whether positive or negative. For example, last Thursday, a slight drop in weekly unemployment claims triggered a rally. This week, key inflation indicators are due, and the markets will be watching closely to gauge how aggressively they believe the Federal Reserve will cut rates in the coming months.
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Written by: Author Unknown, for the National Association of Manufacturers (NAM).
