When the Federal Reserve published its monthly statistics for revolving credit (which is nearly all credit card debt) for December 2010, the figures caused a bit of a stir. For the first time in more than two years, consumers had spent more on their credit cards than they’d paid down. Things returned to normal in January and February with falls in debt levels, but March turned out to be similar to December: a small increase ($100 million) in the amount owed in revolving credit.

On Tuesday, the Fed released its figures for April, and these showed a return to the downward trend, with credit card debt falling by $1 billion. Up down, up down… What’s going on?

Credit card debt trends

When it comes to debt, credit card trends over recent years have been pretty much as you’d expect, tracking people’s perceptions of their prospects and personal wealth. So the Fed says that the percentage changes for the following years were:

• 2006 +5.0 percent (life’s great)
• 2007 +8.1 percent (life’s great, and I’m feeling rich)
• 2008 +1.7 percent (life’s great but what’s this credit crunch everyone is talking about?)
• 2009 -9.6 percent (OMG! I might end up sleeping in my car)
• 2010 -7.5 percent (maybe I’ll get through this, but I never again want to be as scared as I was last year)

If you look at those percentage changes (shown as annualized rates) for each quarter of 2010, you can see people’s confidence slowly (and unevenly) returning:

• Q1 2010 -11.9 percent
• Q2 2010 -6.6 percent
• Q3 2010 -9.4 percent
• Q4 2010 -3.1 percent

That’s a big difference between the first and last quarters, though the last, of course, contained the holiday season, during which many tend to loosen their purse strings. Still, compare the first quarter of this year (-4.8 percent) with the same period in 2010 (-11.9 percent), and it’s hard to deny a trend. Especially as the fall in credit card debt (again expressed as annualized rates) in April was just 1.4 percent, and followed a 0.1 percent rise in March.

Credit card debt trends: the drivers

The extent to which people are willing to pile debt on their credit cards is closely tied to consumer confidence, and that, in turn, has recently been particularly affected by three key factors:

1. Unemployment
2. The housing market
3. Gas prices

Assuming you haven’t just returned from a four-year tour of the more distant parts of our galaxy, you are likely to have noticed that these have for some time been less than conducive to a buoyant economic outlook. And, unfortunately, high unemployment looks set to remain a serious issue for some time to come. Just yesterday, the Labor Department revealed that 1,000 new claimants filed for unemployment benefits last week.

Confidence returning?

However, news for the housing market may be about to improve, with The New York Times reporting on May 31 that: “For real estate, some economists say, an end to the seemingly endless decline in housing values might be in sight.” And, though they remain high, gas prices have begun to moderate.

This may be why the Discover U.S. Spending Monitor, published Wednesday, which polls 8,200 Americans each month to track economic confidence among consumers, showed a rise (though only a very slight one) in May. Yesterday, Bloomberg released data from its own weekly consumer confidence index, and this too showed an improvement–a slightly larger one–for the seven days up to June 5.

Credit card debt trends in the future

Only a fool (check them out) would make firm predictions in the current economy, and there is a real (though a very far from certain) chance of a double-dip recession. However, if the country manages to avoid that, and fragile indicators maintain their painfully slow positive momentum, then it’s possible that consumer confidence could rally, and credit card use as vehicle for debt rise.

Many are likely to be horrified by that prospect, and certainly few advocate a return to the bad old days of 2007. However, it’s difficult to see a full economic recovery without some rise in card debt. Let’s hope that this time it is managed more responsibly both by consumers and credit card companies.

Published 06/10/11 (Modified 04/20/12)