The interest rate cut was announced on the last day of July of 0.25 basis points. The markets were focused on future rate cuts. We focus on the effects of such actions. Interest rate cuts make long term projects viable which were unprofitable prior. Businesses would be enticed to refinance their existing loans at a lower interest rate so that their margins increase due to lower interest payments. Also, they will be able to expand their debt levels more to expand their business operation.
While there has been a lot of focus on the trade uncertainty, the loans & deposits have been expanding suggesting that consumers will buy more in the present. Internally there has been a lot of buildup of capital that the industrial companies can benefit from.
Consumer Loans
Overall consumer loans expanded by $10.4 billion dollars in the last week of July. Consumer Loans moves to the balance sheets of the business as revenue from the purchase transaction and which in turn moves to the employees and other vendors who provide the product and services. The new money will reach the hands of the consumer which creates more spending in the marketplace. In a simple sense, when there is loan expansion businesses have to focus on producing more products and delivering them in a convenient way for the clients/customers. This way business will be able to absorb the new money entering the marketplace due to additional loans. Focusing on short term production and reduction of operating cost will come handy in a low-interest-rate environment.
Automobile Loans
Automobile loans expanded by $1 billion dollars in the penultimate week of July.
Personal And Student Loans
Personal & Student Loans expanded by nearly a $1 billion dollar. We think replacing colleges with in-house training will reduce the cost of tuition and the expansion of loans. People can start their career debt-free which takes a lot off the shoulders. Most companies have training programs to prepare candidates to the job environments but these programs are not build with the thought process making it ROI positive. That’s why most companies rely on third-party ed-tech companies to port employees. A simple way to do it would be if companies identified the most time-consuming process in their organization and created an in-house training to free up their existing employees time so it would bring productivity and also new candidates will have exposure to a real-world business problem. It’s a win-win for both. Improving business and individual productivity will be crucial to reducing the cost of living.
Credit Card & Other Revolving Plan Loans
Credit card loans had a big jump in the last week of July expanding about $8.6 billion dollars. As the volume of debt expand we would need innovative ways to reduce the debt levels. But the expansion of debt opens up the opportunity as it creates capital gluts.
Real Estate Loans
Real Estate loans expanded by $11 billion dollars in the final week of July 2019.
Resident Real Estate Loans
The consumer side of real estate is seeing more expansion than the commercial side. Last week of July residential real estate loans saw a $9.4 billion dollar expansion.
Commercial Real Estate Loans
Commercial real estate loans expanded by $2 billion dollars in the final week of July. In light of Interest rate cut, the commercial real estate leases and loans are going to expand as businesses expand their operation.
Commercial And Industrial Loans
Commercial Loans declined by a $1 billion dollar in the last week of July. Industrial Loans have remained stagnant in the past 3 months time. Combination of Interest rate reduction and Infrastructure bills will be needed to reboot the industrial sector.
Savings Deposits
Savings deposits declined by $160 billion dollars in the final week of the month. It happens in the last two weeks of every month where the consumers spend more money to purchase products & companies spend money on fulfilling orders.
Demand Deposits
Demand deposits expanded by $140 billion dollars in the final week of July. Usually, business accounts gain from consumer spending activities in the last two weeks of the month.
Other Checkable Deposits
Other checkable deposits expanded by $20 billion dollars in the last week of July.
Small-time Deposits
Small-time deposit expanded by $200 million dollars for the penultimate week of July. Small-time deposit indicates near term customers will buy products. They are holding off for some personal events or holiday season or they are awaiting better deals. Either case there is capital so it means there will be buyers.
How Business can use this data to improve their sales and business operation
Businesses often estimate demand, it is one of the hardest things to estimate. Availability of capital is the best indicator of future demand. A business decision like production increase, staffing expansion, new store/office, faster delivery options etc. These decisions involve cost so any overestimation will lead to inventory buildup and capital expenditure. If consumers have capital in their banks then businesses can be sure that consumer will be willing to spend if they are advertised and products are priced in an effective way.
Expansion of Loans And Availability of capital deposit account can provide an indication of the spending pattern of the consumer whether they are buying in the present or waiting for the future to buy at a more amicable time. It’s a good technique to gauge your customers. When there is capital availability and consumer are spending in the future it’s time for businesses to target audience and also send more products to the market to absorb this consumer trend.
In a low-interest rate economy, if there is an expansion of loans in the consumer and business sector then produce and deliver more products to absorb the capital from credit expansion.
Small Time deposits represent group customers that are waiting to buy products in the near future.
Commercial And Business Loans have been flat for the last 3 months.
