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Consumer borrowing picked up in March according to newly released data from the Federal Reserve Board, an early sign that consumer confidence may be improving. However, while overall consumer credit rose in March, the one notable exception was credit card debt. Revolving credit, which is largely a measure of outstanding credit card debt, continued its record 18-month slide, dropping 4.5 percent on an annualized basis.
According to the Fed report, overall consumer credit ticked upwards at a 1 percent annual rate in March, as overall consumer credit rose from $2.44 trillion to $2.45 trillion. The increase was driven by non-revolving credit, a measure of borrowing for cars, mobile homes, boats, and student loans. Non-revolving credit climbed at an annualized rate of 3.9 percent to $5.1 billion. The increase was in part spurred by strong March car sales, as consumers scaled up borrowing for cars to take advantage of generous purchasing incentives from Toyota and U.S. automakers Ford and General Motors. Overall auto sales increased to 11.8 million in March, their strongest level in seven months. (The Fed report on outstanding consumer credit does not include real estate lending.)
Revolving credit, or outstanding credit card debt, on the other hand, dropped by $3.2 billion, to $852.6 billion at an annual rate of 4.5 percent. Since it started its 18-month decline in October of 2008, overall credit card debt in the U.S. has declined from $975.7 billion in September 2008 to $852.6 billion in March, shaving off a total of $123.1 billion off Americans’ credit card balances.
While the continuing drop in revolving credit may indicate that consumers have been taking tighter control of their finances and both paring down credit card debt and taking on less new debt, the picture is not that simple. The decline in outstanding credit card balances also results from the record write-offs of bad credit card debt, which card issuers continue to make, with average credit card defaults still in the double digit territory. Credit card borrowing also likely is hampered by the reduced credit lines, which many Americans have seen over the past year and a half, as well as greater reluctance on the part of credit card companies to issue new credit cards.
Still, the overall growth in credit may well be a sign that consumer spending is picking up as the job market show early signs of recovery and other vital signs of the economy begin to stabilize. Consumer spending accounts for 70 percent of the economy, making consumer confidence a key driver of economic recovery.
