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Banks Lending: The Key to Consumer Spending?
16 Aug
Summary
- Consumer spending depends on banks continuing to lend.
- Higher oil prices and rising interest rates pressure consumers.
- Lending data is a more reliable indicator than sentiment.
Consumer spending is predicted to remain robust, contingent on banks maintaining their lending activity. This perspective shifts focus from consumer sentiment surveys to the critical infrastructure of the credit system. Pressures on household budgets are mounting due to increasing oil prices and rising interest rates across various Treasury maturities, including the 10-year yield, which is nearing its year-to-date high.
While consumer sentiment has declined, retail sales have continued to show gains, partly fueled by revolving credit. However, the key indicator to monitor remains the lending data from financial institutions. The current financial climate, marked by elevated oil prices and a significant rise in the 10-year Treasury yield, is squeezing discretionary income and increasing borrowing costs.
The yield curve also presents a subtler picture, with a flattening trend suggesting market anticipation of slower growth or potential shifts in Federal Reserve policy. This evolving economic landscape underscores the importance of observing bank lending practices as a primary determinant of future consumer spending patterns.
