Our Take
The 'resilient consumer' narrative obscures the real driver: Americans spend because they borrow, and loan demand is now falling consistently.
Why it matters
Financial institutions and economic forecasters who rely on consumer spending models need leading indicators that actually predict behavior. Credit demand patterns preceded the 2008 crisis by three years.
Do this week
Risk managers: Review the Fed's Senior Loan Officer Survey quarterly data before Thursday to spot demand shifts ahead of Friday's jobs report.
Credit demand falls as spending narrative persists
Consumer debt stands at $18 trillion while economists continue describing consumer behavior as driven by resilience rather than credit access. Federal Reserve data from the Senior Loan Officer Opinion Survey shows banks reporting falling demand for consumer loans in eight of the past ten quarters for credit cards and nine of ten quarters for auto loans.
The same pattern of declining loan demand occurred for nearly three years before Lehman Brothers collapsed and the 2008 financial crisis began. Major banks cited consumer resilience in recent earnings calls, while PayPal attributed stronger earnings to the same factor (per Reuters reporting).
Meanwhile, layoffs continue across sectors. Coinbase cut 14% of staff (approximately 700 people) this week, citing crypto market conditions and AI advancement. The company's Q4 revenue fell 22% year-over-year. PayPal reportedly plans to reduce staff by 20% over the next few years through restructuring efforts.
Credit patterns predict economic shifts
Working American incomes have not kept pace with inflation over the past half-century, creating a gap filled by credit rather than wage growth. Credit card balances have increased substantially since the pandemic recession, making credit availability the actual economic engine.
Current unemployment rates mask hiring weakness. Research from Yale's Budget Lab shows that while unemployment remains historically low, most new hires already have jobs. "It's gotten harder and harder to find a job if you don't already have one," researcher Ryan Nunn found, with this trend understating hiring weakness throughout 2024.
The April jobs report due Friday carries estimates ranging from 80,000 new jobs (per Bank of America) to 135,000 (per Jefferies), but these figures may not capture underlying labor market stress affecting consumer credit capacity.
Track credit, not sentiment
Financial institutions should monitor Federal Reserve lending surveys rather than consumer confidence indices for economic forecasting. The Senior Loan Officer Opinion Survey, published quarterly, provides direct insight into credit demand trends that precede broader economic shifts.
The ten-quarter timeline of declining loan demand aligns with the period when unemployment rates have masked hiring difficulties, suggesting coordinated pressure on consumer finances despite surface-level economic stability.
Gas prices reaching $4.40 per gallon in some regions add immediate pressure to household budgets already stretched by credit dependence, though the threshold for broader economic disruption remains unclear.