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Economy in Brief

U.S. Financial Accounts Show Sizable Credit Demand in Q2, but Down Slightly from Q1
by Carol Stone, CBE  September 24, 2021

• Federal government borrowing equals 10% of GDP.

• Household mortgages a main driver.

• Financial institutions borrow sizably for a third successive quarter.

Borrowing in the U.S. economy totaled $5.233 trillion, seasonally adjusted annual rate, in the second quarter, somewhat less than the $5.977 trillion in Q1. The second quarter amount equaled 23.0% of GDP, compared with 27.1% in Q1. Before the pandemic, that is, prior to Q1 2020, borrowing by the major sectors of the U.S. economy had run in a range of 11% to 14% of GDP since the recovery following the Great Recession.

There are two major sources of the recent credit demand, the federal government and the household sector's mortgage borrowing.

In Q2, the federal government borrowed at a seasonally adjusted annual rate of $2.31 trillion, up modestly from $2.12 trillion in Q1. The earlier amount reflects a sizable revision from $1.54 trillion as the Federal Reserve produced annual updates of seasonal adjustment factors. The Q2 amount represented 10.2% of GDP, following 9.6% in Q1 and 9.1% in Q4 2020.

For the household sector, borrowing totaled $1.344 trillion, equal to 7.5% of disposable personal income. The borrowing emphasized 1-4 family home mortgages, as it has for the last year, since mortgage interest rates have hovered at record lows. In Q2 2021, this amount was $884 billion, up from $610 billion Q1 and the largest dollar amount since 2006 and 2007 in the run-up to the Great Recession. However, the current mortgage borrowing is 4.9% of disposable income, compared to 10.0% in 2006. Consumer credit has also been relatively sizable recently; the Q2 amount was $364.7 billion following $151.5 billion in Q1; the Q2 amount is 2.0% of disposable income, the highest since 2.8% in Q4 2001; from 2012 to 2017, this measure averaged 1.5%.

Nonfinancial corporate businesses borrowed just $124.8 billion in Q2, following $507.0 billion in Q1. The Q2 amount included $198.8 billion of securities and a net paydown of $74 billion in loans. This borrowing equals just 5.3% of capital outlays, down from 21.9% in Q1.

Domestic financial sectors borrowed $1.053 trillion in Q2, relatively close to the $1.002 trillion in Q1 and $1.038 trillion in Q4 2020. As noted in the discussion of the previous quarter's borrowing, these are relatively sizable amounts for the financial sector, especially now extended to a third consecutive quarter. By type of liability, the strength has been in debt securities, especially GSE-backed bonds, such as those from FNMA and FHLMC. These could thus reflect the current strength in the home-lending market.

Net wealth in the U.S, economy rose $5.965 trillion in Q2 (quarterly amount, not seasonally adjusted or annualized), just slightly less than the $6.267 trillion advance in Q1. Household net worth increased $5.849 trillion in Q2 following an advance of $5.131 trillion in Q1.

The Financial Accounts data are in Haver's FFUNDS database. Associated information is compiled in the Integrated Macroeconomic Accounts produced jointly with the Bureau of Economic Analysis (BEA); these are carried in Haver's USNA database as well as in FFUNDS.

Financial Accounts (SAAR, Bil.$) Q2'21 Q1'21 Q4'20 Q3'20 2020 2019 2018
Total Borrowing* 5,233 5,977 4,687 2,363 7,673 2,976 2,842
    % of GDP 23.0 27.1 21.8 11.2 36.7 13.9 13.8
Federal Government 2,315 2,122 1,948 1,375 4,581 1,175 1,258
Households 1,344 1,121 1,006 905 620 514 471
Nonfinancial Corporate Business 125 507 -19 -358 929 480 348
Financial Sectors 1,053 1,002 1,038 -190 872 330 313
Foreign Sector 166 865 563 87 70 207 198

*Previously called "credit market borrowing" and includes debt securities plus loans. The total here includes borrowing by noncorporate business and state & local governments, not shown separately.

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