Consumer debt skyrocketed in 4th quarter

Total American consumer debt increased at an annual rate of 7.5 percent in the fourth quarter of last year, a huge rise that indicates U.S. economic growth is again being fueled by borrowing.

According to a report from the Federal Reserve, credit card debt jumped 4.5 percent to $801 billion after shrinking 2 percent the previous quarter. The resurgence of auto sales pushed non-credit card consumer debt up at an annual rate of 9 percent to $1,697 billion. In total, consumer credit increased by $19.3 billion to $2.5 trillion.

The willingness of consumers to take on more long-term debt - like car loans - indicates growing confidence in the economy. Sales of cars and light trucks totaled 12.8 million for all of 2011, a 10 percent increase from the year before, according to researcher Autodata Corp. This trend has continued into the new year. Excluding the period of the "cash for clunkers" program, January was the best month for U.S. car sales since May 2008.

Consumer confidence is so far running ahead of economic reality. All this spending has yet to be reflected in the economy. Initial government figures show the nation's GDP grew at an anemic annual rate of 2.8 percent in the last three months of 2011.

While people are keeping up with their credit card payments, it is coming at a cost. Credit card write-offs were down 32 percent last year because U.S. consumers were able to make payments on time, according to Equifax. Bank credit card write-offs dropped 39 percent from 2010 to 5.53 percent, while retail credit card write-offs dropped 26 percent, to 8.4 percent. With wages stagnant, at best, this has meant people are spending down their savings. The U.S. personal savings rate dropped from about 5.5 percent at the start of 2011 to about 4 percent by the end of the year.

Wages have been stagnant in the U.S. for years and unless consumers start seeing some real improvement in their earnings soon, this could wind up being an unsustainable credit-card based recovery.

[JamesStein]

We know full well what's causing consumer credit to rise (by the way, you can view great charts at http://www.federalreserve.gov/datadownload/Choose.aspx?rel=G19). We've now had 7 consecutive months in which the economy has added at least 100,000 jobs and the last 2 months have been the most productive in the series. The number for December was 200,000 and the one for January was 243,000. The unemployment rate is now at 8.3%, 0.8% below the August 2011 rate and the lowest one in 3 years. The better employment picture is yet to produce any meaningful rise in paychecks (hourly wages were up by only 1.9% in January on a yearly basis), but Americans feel increasingly upbeat about the future all the same and are starting to take up more debt once again. http://blog.unibulmerchantservices.com/u-s-credit-card-debt-on-the-rise-again-up-for-4th-straight-month