Credit-Land.com Report: Consumer Debt Increase Could Signal Economic Recovery

According to a recent report from the Federal Reserve, consumer debt in the United States increased for the fifth consecutive month. This increase occurred amid a decrease in consumer credit card debt. Economists speculate this could be a sign of an ongoing economic recovery from the recent years of recession. With the announcement on Tuesday from the U.S. Census Bureau and the U.S. Bureau of Economic Analysis regarding a decrease in trade deficit in February, these positive trends will depend on how the economy copes with rising oil and food prices.

Consumer Debt on the Rise

Total consumer debt in the United States increased by a seasonally adjusted annual rate of 3.8% in February. This is the largest increase in debt since June 2008. Consumer debt increased by $7.62 billion to about $2.42 trillion, up from the $2.41 trillion consumers owed in January. This increase in debt is specifically of non-revolving credit, including one-time loans for various purchases, such as automobiles, mobile homes and school tuition. This kind of debt suggests consumers are beginning to feel more secure with the future of the economy and are making more big-ticket purchases.

Decline in Credit Card Debt

Despite the report of rising consumer debt, overall credit card debt decreased. In February, credit card debt, called revolving credit, dropped for its second consecutive month by an annual rate of 4.1%, or $2.71 billion. In addition, there is a decrease in credit card delinquencies, which means consumers are doing a better job of paying their bills on time. Bank-issued credit card delinquencies dropped to their lowest rate of 3.28% in the last quarter of 2010, compared with the 3.64% in the previous three months, according to the American Bankers Association.

What This Means for the Economy

Economists believe these figures suggest greater consumer stability; they are more capable of paying off credit card bills on time and are taking out more loans with increased confidence in the economy. An increase in debt is better for the overall economy because consumers are purchasing more and saving less. With employment on the rise and a Social Security tax cut, consumers aren’t as worried about saving money and are more confident in the future economy. Although food and gas prices have been on the rise recently, hopefully consumers are in a more secure financial position to deal with these challenges.

Decrease in Trade Deficit

Today the U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced that the trade deficit decreased in February. The goods and services deficit decreased to $45.8 billion from $47.0 billion in January. Although this narrowing deficit is a positive sign for the economy, analysts had anticipated the deficit to decrease more substantially to $44.5 billion in February. Also, with rising oil and food prices, economists fear this trend could be short-lived.

Lindsay Curry

Lindsay Curry holds a bachelor's degree from the University of Massachusetts. Lindsay has an extensive background in finance, working for a Fortune 500 company for a number of years. She is a regular contributer to numerous online and print publications, with a focus in personal finance and credit card industry.