How Consumer & Real Estate & Commercial Loans Have Expanded In US In 2019
Consumer Loans
Low-interest rate environment has expanded the debt levels in the economy. The market expects the expansion of credit to fund the purchase of asset classes in the economy. Consumer Loans have been increasing in the second quarter of 2019 which have been creating increased consumer spending activity. Consumer Loans usually go into purchasing assets or products like Automobile, Electronic items, credit card purchases, home improvements, and other things in the marketplace. Factors that improve consumer spending are Investment from business to expand their operation, foreign investments, Tax cuts, Loans, Interest rates, price of other commodities, food and energy, deregulation, infrastructure improvements, Private contracts from the Government and innovation.
Tax cuts from 2017 created glut of capital in the marketplace. Consumer spending increased during the same period. Companies sending more products to the marketplace saw increased sales.
The only way consumers can get ahead of the debt curve is through the innovative remodelling of existing cost-consuming purchase behavior. Weekly salary can reduce the expansion of credit card debt. Money paid as interest is now available to purchase products in the marketplace. Credit Card APY ranges at 15% which can curtail consumer behavior. Purchase behavior will be tied to the Interest rate variation. It increases the cost of living and also reduces the purchase volume of the consumer.
Interest Rate across America has been lowered by 0.25 basis points which again moves business and consumer to add additional debt to keep the current spending levels. Upcoming months are going to have increased loan activity on the business and the consumer side. Trade uncertainty can go more than a year so the business has to reassess risk and consumer spending will increase if they anticipate price increases in the upcoming months.
What reduces business uncertainty is the availability of capital. When deposits accounts show capital buildups then it is a metric that validates future purchases. Now overcoming the increased cost of doing business through workflow remodelling to reduce time-consuming jobs. High-level contextual break down of business events can reduce uncertainty in trade. Will the consumer buy at a higher price point? If there is capital they would buy at a higher price point but every business has a lot of room to bring down the cost of operation.
For 2019 Consumer spending is growing and certain parts of the consumer has exhibited price specific buying activity due to increased cost of servicing the debt. The credit expansion is going strong as businesses are investing on their business expansion which has created job growth.
Businesses that produce and deliver more products in line with the consumer preference will see increased sales. Focusing on near term products and best selling products will benefit companies as the loans taken seep through the economy.
First-quarter of 2019, the consumer Loans rate declined while it has picked up in the second quarter of 2019.
Automobile Loans
Automobile loans increased for the first quarter of 2019 prior to last quarter. Consumer Loans declines were seen in the credit card spending and other loans that revolve the credit card plans.
Credit Card Loans
Credit Card Loans saw declines in the first quarter of 2019 when compared to the 4th quarter of 2018. One of the factors would be rising interest rates. Credit card interest rates have reached 15% in commercial banks. Consumers were price specific in the first quarter as the retailers with higher pricing were negated by the consumer. Off-Price stores and Discount stores did well in the first quarter of 2019. Loan expansion is a function of capital availability and Interest rates.
Other Loans Revolving Credit Card Plans
Other Loans revolving credit card plans with lower Interest rates would have been more preferable for the consumer. Federal Reserve Bank increased the Interest rate in Dec 2018 which has caused Interest rates to increase. So consumer utilized other loans that had a lower interest rate to fund their purchases. Some portion of people would have refrained from purchases. Other Loans increased in the first quarter of 2019.
Real Estate Loans
Real Estate loans have risen this year as well. Lower Interest rates along with growth in employment has increased the demand for Real Estate Loans. Real Estate loans have seen a drop in interest rates in anticipation of Interest rate cuts this year. There is over $80 billion increase in Real Estate Loans for 2019 (Till July 24). We are going to see the trend continue as Interest rate softens and trade concerns ease. Business expansion will be a driver for commercial real estate spaces along with the growth of residential real estate as the consumer employment holds. Businesses are investing in adding convenience to the customers and take advantage of the digital sales. Retailers are creating small shop formats in densely populated urban and semi-urban areas, along with that they are renovating the existing stores to fulfil more orders by acting as a warehouse and pickup orders from the stores. Amazon is venturing into physical stores as the trend in online grocery continues to grow. For startups that are struggling with price points like Uber, Lyft and Tesla. It may be a good time to increase the prices while the consumer spending rate is high.
Commercial & Industrial Loans
Commercial Loans increased over $200 billion dollars during 2018. 2019 had slower growth and the market was anticipating Interest rate cut. Interest rates were reduced by 0.25 basis points and now the Federal funds rate is now at 2–2.25 basis points. Industrial Loans induce short term spending as the new loan money flows into the hands of raw materials providers, infrastructure providers, real estate providers, and their employers. Movement in the savings accounts suggests consumers are spending more money in the present than saving in time deposits for the future. Many sectors reported better than expected second-quarter results which means they have more cash flow from the quarter. Other than Alabama, California, Tennessee, Colorado, And Florida every other state saw an increase in Commercial And Industrial Loans in the first quarter of 2019.
How Loans have impacted Consumer Spending
Loans in the short term increase consumer spending so businesses that produce products in-line with the consumer preference will see increased sales. Consumers expect convenience and digital sales have increased for every business. Many companies have invested in building out supply chain facility to deliver products the same day. Companies that increase convenience and alleviate the inconvenience of the consumer will add more customers and absorb their capital. There are many aspects to a business operation that can make consumers buy so faster delivery & huge discounts shouldn’t deter other methods like customer engagement, quality & variation of the product, unique products, time-saving and future value of the product.
The credit expansion cycle started in 2009 has the first leg of credit expansion till 2014. Then in 2017 there was expansion of capital in the form of Tax cuts. In 2019 we are witnessing Interest rate cuts and ending the balance sheet normalization of Fed.
Immediate industries that benefit from Loan expansion would be Transportation industry, Raw Material Industry, Financial Institution, Furniture & office space providers, Commercial real estate sector, Retail sector, and Employees of those companies.
