The latest figures released by the Federal Reserve show that consumer credit in the U.S. jumped by $20.4 billion in November 2011 to $2.48 trillion, its biggest jump since November 2001. [1] The increase was well above the median estimate of $7 billion by economists and nearly twice the highest estimate of $11.6 billion, demonstrating that U.S. consumers may be feeling more optimistic about economic growth and job creation. [2] Rising consumer spending should drive loan growth for credit card issuers and banks such as Capital One (NYSE:COF), Discover Financial (NYSE:DFS), Bank of America (NYSE:BAC) and JPMorgan (NYSE:JPM).
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Consumer confidence improves
Consumer sentiment in the U.S. improved for the fourth straight month in December 2011, with the indicator rising from 64.1 to 67.7 according to the Thomson Reuters/University of Michigan survey. This is still, however, far behind the 90 to 100 range that signifies a strong economy. [3] Consumer confidence also received a boost when the Labor Department reported that U.S. employers added 200,000 jobs in December and the unemployment rate decreased to 8.5%, the lowest since February 2009. [4] Retailers also enjoyed the record end-of-year shopping season with record sales on Black Friday. [5]
All these are signs of an improving economy but it remains to be seen if this level of spending is sustainable. A large portion of the surge in borrowing was driven by car sales. Sales of light-vehicles reached an annual rate of about 13.6 million units in November 2011, up from 13.3 million in October and 12.3 million in November 2010. [6] While this growth may not continue, we do expect that this improvement in consumer confidence and auto sales will boost Capital One’s auto loans in the near-term.
We have a $48 price estimate for Capital One, which is slightly ahead of its current stock price.
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Notes:- Consumer Credit – G.19, Federal Reserve, Jan 9, 2012 [↩]
- US consumer borrowing jumps in November, FT, Jan 9, 2012 [↩]
- US consumer confidence improves, FT, Dec 9, 2011 [↩]
- US unemployment rate declines to 8.5%, FT, Jan 6, 2012 [↩]
- Black Friday retail sales hit record, FT, Nov 27, 2011 [↩]
- Pickups drive US vehicle sales to yearly high, FT, Dec 1, 2011 [↩]
