Weak consumer spending in recent months has puzzled Wall Street. The answer may lie with cautious Main Street lenders.
Personal-consumption expenditures, a broad measure of household spending, rose just 0.2% in both January and February on a seasonally adjusted basis, according to Commerce Department data. This was slower than a 0.4% rise in personal incomes in both months, suggesting Americans are saving more. A separate data series showed retail sales fell for the third month in a row in February, disappointing economists who had estimated a slight gain for the month.
These figures are somewhat puzzling given the strong macroeconomic backdrop for consumption. The labor market is tightening, wages are rising and consumers’ take-home pay is being boosted by tax cuts. Why, then, isn’t spending stronger?
It may be partly due to distortions from last year’s strong hurricane season. Consumers who rushed out to replace damaged cars or appliances after those storms are now done shopping.
But, in a recent note, Cantor Fitzgerald strategists pointed to another possible cause, saying that tightened lending standards by credit card, auto and other lenders may be squeezing consumer finances.
Since 2011, the Federal Reserve’s quarterly senior loan officer survey had consistently found a net loosening of credit standards on consumer loans and credit cards. That began to shift at the end of 2016, though. More respondents said they tightened standards than not in four of the past five quarterly surveys.
This makes sense given the amount that consumers have borrowed in recent years. Data from the Federal Reserve Bank of New York show that aggregate household debt balances have risen for 14 straight quarters and at the end of last year exceeded their previous 2008 peak by $473 billion.
Credit-card lenders including Capital One and Synchrony Financial have confirmed that they tightened lending standards over the last two years in response to rising defaults or delinquencies. So, too, have auto lenders like Santander Consumer.
When this happens, consumers with lower credit scores will find it harder to secure auto loans or new credit-card lines. One naturally would expect to see some impact on spending despite healthy incomes.
The debt that consumers have built up in recent years could be a drag on the economy for some time.
Write to Aaron Back at aaron.back@wsj.com