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Consumer Credit Use On The Rise


Consumer Credit Use On The Rise

According to statistics finally released, consumer credit card balances increased notably in May. This could be a good sign for the economy, but it does not signify that US consumers are completely in the clear quite yet.

With the publications of the Federal Reserve’s monthly G.19 Consumer Credit Report, which was released Monday, it is evident that revolving debt among consumers has risen more than 11 percent over the past month.

Revolving debt is the category debt that is primarily composed of credit cards, which means that the $8 billion increase in debt during May (to a total of more than $870 billion) is made up mostly of credit card charges.

Of course, financial experts claim that this increase was something they anticipated but, according to Paul Edelstein, director of financial economics at IHS Global Insight, “the size of the increase was a bit of a surprise.”

Regardless of the specific facts it is generally understood that the increase in credit card use is a good sign of things to come in the United States because it signifies more consumer confidence. More consumer confidence means more people are willing to use a credit card for everyday purchases instead of just emergencies, which is standard operating procedure for most American consumers during a recession.

At the same time, experts also suggest that the increase could be temporary and more time and information is needed in order to determine if it will sustain long term growth; a disappointing job market, for example, doesn’t help. Edelstein says:

Consumers will still feeling pretty good in May, so it’s not surprising that they decided to take on some more credit card debt. We know that consumer confidence took a hit in June. The jobs reports have been terrible. The stock market hasn’t been doing very well.

In short, consumer confidence is still not completely restored and perhaps “some of the bad economic news took some time to catch up” to consumers, causing the delay.

It should be quite obvious to most people that the economy has had its ups and downs over the past year. As a matter of fact, these statistics show the biggest increase in consumer revolving credit use since 2007. Furthermore financial experts are having a hard time solidifying any prediction for the future, based on the instability of these statistics. Edelstein continues:

I really suspect we’re probably going to see softer spending numbers this month and last and we’re probably going ot see that on the revolving numbers, as well.

In response to the uncertainty, Keith Leggett, senior economist with American Bankers Association says

There’s a lot of [it] out there with regard to how the economy is performing. And that will kind of weigh on consumers especially with regard to their willingness to take on new obligations.

These “new obligations,” of course, is in reference to new credit accounts. Without significant job growth and the economy still in a state of flux, consumers are still wary about money. Although it seems that credit card use is up, there is no reason to believe that the United States has fought its way into economic recovery.

For example, despite the Labor Department announcing (on Friday) more than 80,000 jobs have been added to the economy in June, the unemployment rate has not fallen. Holding at 8.2 percent, “the number of unemployed persons (12.7 million) was essentially unchanged in June,” reported the Labor Department in a recent press release.

At the end of the day, though, the numbers are promising. Leggett commented on the fact that consumers are, for instance, more consistent with getting payments in on time. While this might reflect an overall fear of excessive fees, he says that “this is clearly an indication that consumers are doing a better job managing their finances.” And that is always a good thing.

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