April marked the seventh month in a row that U.S. consumers took on additional debt, reflecting a big rise in non-revolving credit such as auto loans and student loans for the month. The Federal Reserve released the report June 7, showing a rise of $6.25 billion in April consumer credit. While the total amount of money that U.S. consumers borrow continues to increase, consumers are cutting back their spending on credit cards. Revolving credit fell $1 billion in April, after a small increase in May of $0.1 billion.
Prediction versus Reality
The economists at Credit-Land.com had reported an increase in revolving credit applications which concurred Wall Street forecasts that U.S. consumer debt would increase in April by $5.33 billion. With the increase coming in at $6.25 billion, consumers took on more debt than even Wall Street economists expected.
Non-revolving debt soared $7.2 billion in April compared with an increase of $4.8 billion in March. These same economists also attribute the increase in debt to the fact that consumers are experiencing tough economic times as opposed to the economic environment improving.
According to a representative from Wells Fargo Securities, “What appears to be a turnaround in the credit cycle is mostly an increase in student loan debt as people go back to school to improve skills amid high unemployment and as state budget cuts push up tuition.”
Federal Reserve Makes a Correction
The Federal Reserve also corrected the numbers for March. The Fed says that the amount of debt increased by $4.82 billion in March, a downward revision from earlier reports.
Consumers Still Avoiding Credit Card Debt
The twist on incurring debt is that U.S. consumers seem to be avoiding credit card debt. According to the Fed, credit card debt decreased by $943.5 million in April after a $36.7 million credit card balance increase in March. Financial and credit experts suggest that the decrease in credit card balances indicates that U.S. consumers are still wary of incurring this type of debt as opposed to taking on debt in the form of student loans and vehicle loans. Consumers are also trying to cut back on spending in the face of increasing gas and food costs.
Another factor that could be affecting credit card debt is the decline in disposable income. Government data last month showed that U.S. disposable incomes, when adjusted for inflation, fell for a second straight month in April. Higher prices for staples such as food and gasoline are taking a big bite out of consumers’ budgets and leaving a lot less for discretionary purchases.