Americans Spending More on Credit, Taking on Higher Debt

By: EW News Desk Team   Date: 8 December 2011

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EW News Desk Team

Always on the look out for the latest news to monitor the state of the world economy.

EconomyWatch, News Desk Team

 

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08 December 2011

U.S. consumer credit rose for the second consecutive month in October – a month marked by Thanksgiving shopping and precedes Christmas spending – a sign that Americans are taking on more debt to pay for their purchases.

In a Federal Reserve report released Wednesday, consumers raised their debt by an annual rate of 3.7 percent, or $7.6 billion, in October. A bulk of the increase came from the non-revolving credit category, which typically includes loans for education, boats, trailers, mobile homes, or vacations, which amounted to $7.3 billion, or 5.3 percent in October. The Fed said revolving credit, which includes credit-card debt, expanded by a modest $366 million or 0.6 percent in October.

See the Slide Show >>> 12 Shocking Personal Finance Statistics

According to the report, commercial banks, finance companies and the Federal government were the major holders of outstanding consumer credit, with $1.072 trillion, $500.6bn and $409.9bn respectively.

Related Information: Consumer credit report

In particular, government lending has grown dramatically, more than doubling since 2009 – mostly attributed to student loans which the government now holds directly in its books.

Media agencies like the Associated Press report that “the second straight monthly gain in overall borrowing suggests consumers are growing more confident in the economy ahead of the crucial holiday buying season.”

Related: Real-Time U.S. Consumer Confidence Index

Yet, the reality is, people do not hold more debt unless they have to, not because of a better or improving economy.

Accordingly, Americans were more willing to spend despite the weak economic climate. Unemployment remains high, with wages mostly stagnant. The U.S. Labor Department reported last week in a report that inflation grew at 3.6 percent over the last 12 months, outpacing the 1.8 percent growth in wages.

Related: High unemployment rates among US war veterans

Related Story: Persistent unemployment – Stemming from a lack of confidence? : Roger Farmer

Related Story: Unemployment and low wages paint bleak picture for US workers

It’s hard to determine whether spending on credit is a sign of optimism or a sign of distress, but just anecdotally we feel there is the beginning of tentative feelings of comfort in taking on slightly more debt,” said Dana Saporta, a U.S. economist at Credit Suisse.

Nevertheless, consumer spending accounts for approximately 70 percent of total economic activity, a major driver of the U.S. economy.

Related Story: Unprecedented US consumer weakness encapsulated by just one number: Stephen S. Roach

12 Shocking Personal Finance Statistics
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