Smart Borrower Blog

Consumer Borrowing Makes Biggest Jump since 2001


Jan 11th, 2012 @ 2:37 PM by Amber Nelson


Consumers borrowed money at a higher rate in November than they have in a decade, according to the latest report from the Federal Reserve.

Total consumer borrowing grew $20.4 billion in November to $2.48 trillion, posting the largest monthly gain since November 2001 when loans increased by $28 billion. The new total is almost back up to pre-recession levels and significantly above the September 2010 decrease of $2.39 billion.

Credit card borrowing and other revolving credit accounts jumped up $5.6 billion, the largest increase since March 2008 and the third consecutive monthly gain. Auto loans also rose $14.8 billion, almost matching July’s record high.

“Credit growth is a positive sign for the recovery in that it signals increasing demand and willingness to spend,” said Paul Edelstein, an economist at IHS Global Insight in Lexington, Massachusetts, in a Reuters article.

Borrowers also took out more student loans from the government, with a $6.4 billion increase in November, registering a 31.9 percent increase from the previous year.

Overall spending has risen in six of the last nine months. The trend seems to be in response to a moderating unemployment rate and incremental improvements in the overall economy. Certainly, it is an indication that consumer confidence is growing.

Americans have also scaled back on their saving, according to the Fed report. With the onset of the recession, consumers dramatically slowed their spending and bumped up their savings, with the annual savings rate reaching above 5 percent in 2008 and remaining there until 2011. In November, consumers only put away 3.5 percent as savings, the lowest rate since December 2007.

While most of the Fed’s report is positive, a part of the spending increase and accompanying savings decrease, is likely attributed to the difficulties many consumers are facing, such as keeping up with purchases due to unemployment or wages lagging behind the rate of inflation. After-tax incomes, adjusted for inflation decreased by 2 percent between July and September last year. Without real growth in income, increased spending will not be able to continue its current course.

 

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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