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Credit card debt resumes fall

by Peter Andrew
Credit card debt resumes fall

There was much excitement last month when the Federal Reserve published its regular analysis of consumer credit. The figures for December 2010 showed that for the first time in 26 months American consumers increased credit card use. The question on everyone’s lips was: Is this just a blip or are we seeing the start of a new trend?

Okay, it wasn’t on everyone’s lips, but it was the hot topic among those of us (including your blogger) who spend way too much time contemplating the minutiae of the credit card industry. You know: the sort of people you edge away from at parties.

Actually, it was a question that should have intrigued many more people. Because most consumers only take on extra debt (on credit cards, auto loans, boat loans and other things) if they are confident they can make payments. And that consumer confidence is likely to be key to a wider economic recovery.

Credit card debt down again

Now we know the answer to that big question. According to the Fed’s latest data, released Monday, revolving credit (which largely comprises credit card debt) fell again in January, suggesting that December’s rise really was a blip. Indeed, it fell at a faster rate than has been seen for some months, entirely wiping out what now looks like a very short-term holiday binge. Here are six telling figures from the Fed’s new statistical release, showing the nation’s total revolving credit balances at selected times:

  1. 2006–$871.0 billion
  2. 2007–$941.8 billion
  3. 2008–$957.5 billion
  4. November 2010–$797.7 billion
  5. December 2010–$799.7 billion
  6. January 2011–$795.5 billion

Credit cards not the only debt

Of course, credit card use and balances make up only one measure of consumer debt. The other (excluding mortgages, which the Fed doesn’t count in consumer credit data) comprises “nonrevolving” credit, including fixed-term loans for cars, mobile homes, education, boats, trailers, vacations and so on. This measure, largely driven by auto loans, has been rising sharply for months. Indeed, in spite of the fall in credit card balances, overall consumer indebtedness rose by more than $5 billion in January. And, at $1.62 trillion, nonrevolving credit comes in twice as high as revolving credit.

This isn’t necessarily a bad thing. Reuters says that auto sales were up 17 percent in January, which must surely represent a considerable number of jobs saved or created, not just in Detroit and in dealerships nationwide, but also in companies that supply a whole range of products. We’re not just talking auto part manufacturers here; the coffee shop next to the car lot and the grocery store that sells to the salesperson’s spouse are all able to offer greater job security to their existing staff and greater opportunities to those seeking work.

Credit card use set to grow?

Some observers are predicting that December’s rise in credit card debt could yet turn out to be less of blip and more of a precursor of things to come. Economists are expecting an uptick in consumer spending in February, according to a Reuters report. Barclays Capital economist Nicholas Tenev forecasts “further gains in consumer credit outstanding in the months to come,” Reuters said.

On the same day, IHS Global Insight economist Gregory Dacoof said, “the rebound in non-revolving credit is likely to spread to credit cards as consumers’ animal spirits return,” according to a Wall Street Journal report. Dacoof added, “we might see a few more drops in revolving credit over the coming months, but there is evidence that we’re at a turning point.”

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