The US banks are not just lending to Europe. Studies show that the number of loan applications approved by banks is now the highest since after the recession in 2009. Such loans are awarded to both private households and businesses alike. The Federal Reserve says that as of July 25, borrowing has increased to about $7.1 trillion. Lending for the intention of new auto purchases also went up by almost $134 billion in just the first four months of the year. According to Equifax, this is almost 56% more than the figure noted in the same period of 2009.
According to experts, the increase in lending activity despite the fact that the US economy is still struggling with the 8.3% unemployment rate is healthy. It could actually prevent the economy from slipping downwards especially now that the annual growth rate is only at 1.5 percent. Additionally, it is believed that this increase in loan approval could be the jolt needed to shake the economy to wake.
The strong participation of the consumers is also commendable. It must be remembered that households have eased up on their spending during the 2008 to 2009 crisis. Since they wanted to save instead of spend, about 70% of the economy went down too. But with the return of the much-needed activity, economists breathe a sigh of relief. A chief investment strategist says that much of the credit-creation process is at work these days. Banks are lending, people are borrowing and the prices of houses are going up. Hence, there is a sense of normality that hasn’t been felt since 2009.
The rate of borrowing is the number one indicator of economic growth. This does not only mean borrowing from traditional institutions but also the act of obtaining bad credit loans from third party lenders. Economy analysts explain that the more you borrow, the better credit growth is sustained. In the long run, this will speed up the cycle of spending and hiring too.
More Signs of Progress
The Standard & Poor’s 500 Index indicates that stocks went up as of the last reading this week. This is partly because the standards imposed on consumers when they apply for car and credit card loans have somewhat eased.
There is also a lot of the pent-up demands showing up in the market again. Apparently, a lot of consumers have planned of spending but the issue of credit score has always hindered them. Now that the credit score requirement for most lending institutions has decreased then consumers are once again buying.