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Credit card debt bucks upward trend

by Peter Andrew
Credit card debt bucks upward trend

It’s not easy being an economist.

There. It’s been said. Like sane people everywhere, your blogger used to point and laugh when he saw an economist in the street, throw soft furnishings at the screen when one appeared on television, and ensure that the first words out of his mouth on shaking hands with one were: “So how come you didn’t see the credit crunch coming?”

Credit card debt trends crazy

But all that changed when the Federal Reserve published its consumer credit statistical release for July. For years now, this blogger has been trying to make sense of these regular releases, and recent months seemed to indicate the emergence of a definite trend. Here’s how his IndexCreditCards.com news blog described it back in July:

“…there is an undeniable trend (albeit an inconsistent one) that shows that consumers are slowing their paying down of credit card debt. The Fed’s data reveal this in terms of annualized rates of change in revolving credit:

  • 2009: -9.6 percent
  • Q1 2010: -11.9 percent
  • Q2 2010: -6.6 percent
  • Q3 2010: -9.4 percent
  • Q4 2010: -3.1 percent
  • Q1 2011: -5.0 percent
  • April 2011: -1.3 percent
  • May 2011: +5.1 percent”

That May figure was later revised down to +4.6 percent, and June’s (reported in a presciently titled blog, Credit card debt on rising trend) came in at +3.9 percent. But the latest number for July was, um, -5.2 percent. Yep, that month American consumers gained traction, paying down their card debt by $3.4 billion and leaving the total at $792.5 billion.

Credit card use varies

Opinion appears to be split over whether July’s figure is a reversion to the old trend of Americans paying down their credit cards, or a mere statistical blip. Of course, nobody knows for sure, but there are signs that the latter may be the more likely.

The First Data SpendTrend® is a different measure of credit card activity from the Fed’s. It reports the number of credit card transactions each month, and their dollar value, but doesn’t look at debt. It found that, in July, year-over-year credit card transaction growth was a fairly modest +5.3 percent, and dollar growth over the same period was +7.4 percent.

However, in August, the same figures were +11.7 percent and +12.4 percent respectively. So credit card use regained strength last month.

Credit card interest rates an issue?

Of course, it could be that consumers are using their credit cards for reasons other than credit utilization, and that card debt will be seen to have fallen again when the Fed publishes its August data next month. Certainly that would be understandable given that credit card interest rates are creeping up. The average across all cards has risen to 16.53 percent at the time of writing, according to the IndexCreditCards.com credit card rates monitor.

Moreover, when they’re asked about their plans, many consumers claim that the financial crisis has forced them to change fundamentally their attitude to debt. Absolute Strategy Research last week unveiled a July survey in which 67 percent of respondents said that was the case. Roughly one-third said that they would reduce their total debt over the following 12 months, and a similar number said they wouldn’t increase it during that time.

However, what people tell researchers and what they actually do are often two completely different things. And if your blogger were a betting man he’d wager as much as a whole dime on next month’s Fed figures showing a small rise. But what does he know? He’s not even an economist.

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