Smart Borrower Blog

Consumer Borrowing, Credit Card Use Up in October


Dec 7th, 2011 @ 9:24 PM by Amber Nelson


Consumers continued to borrow more money in October, according to the latest figures from the Federal Reserve, and the trend could suggest either progress or danger.

Total consumer credit grew by $7.6 billion to $2.457 trillion, outpacing September’s $6.88 billion increase. Americans have upped their spending and borrowing for 12 of the past 13 months, with August being the notable trend-breaker. Borrowing during that month fell by the most in 16 months.

Still, in general U.S. consumers have been taking on more debt. Non-revolving credit, including student loans and car loans, rose 5.3 percent, or $7.28 billion in October. This could be either be a sign that people now have more confidence in making big purchases like cars, or it could be a sign that people are going back to school in larger numbers as unemployment forces career changes.

Revolving credit, which includes credit card debt, also rose in October, gaining $366.2 million for a total of $792.34 billion.

And while the extra borrowing has helped the economy expand this year – it grew at an annual rate of 2.5 percent in the latest quarter, almost three times the pace from the first half of the year – some fear the spending does not indicate the return of a more stable economy. Rather, they say because inflation has outpaced wages, the upward borrowing trend may simply show that Americans are having a harder time keeping up with their expenses. Over the past 12 months, according to the Labor Department, wages rose by 1.8 percent while overall inflation was up 3.6 percent.

“Many Americans had to break out the plastic in the past couple of months since disposable income, adjusted for inflation, was in negative territory for each month in the third quarter,” said Chris Christopher, senior economist at IHS Global Insight as quoted in a Washington Post article.

As consumer spending makes up about 70 percent of economic activity, we might actually see slower growth in the coming year if consumers are unable to keep up their current borrowing pace.

 

About Amber Nelson
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.

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