Credit-Land Report: Consumer Borrowing Rising Again

For the seventh month in a row, consumer borrowing has been on the rise. The latest monthly increase came primarily from commercial banks and credit unions which are big providers of auto and student loans. Credit card debt, however, is still declining, indicating that consumers are trying to reduce their balances as concern about the economy's recovery weighs heavily on financial behavior.

Borrowing Figures

Borrowing an additional $6.25 billion in April, up substantially from Wall Street estimates of $5.33 billion, U.S. consumers are showing increasing demand for new cars and higher education. In March, borrowing increased by $4.82 billion, but that figure represents a downward revision from earlier data.

It’s Not about Credit Cards

Chris Rupkey, chief financial economist for the Bank of Tokyo-Mitsubishi UFJ Ltd. in the New York division, told Bloomberg that “the gains were driven by non-revolving charges in April, but this was before $4 gasoline at the pump took a bite out of car and SUV sales in May. The consumer is still leery about running up charge-card balances after the greatest financial crisis since the Great Depression.”

Further proof of the decline in the use of credit cards and other revolving credit accounts is in the facts and figures. Revolving debt decreased by $944 million in April. Credit card usage is included in this data. That easily wiped out the small March increase of $37 million, according to the Federal Reserve Bank’s data collection. As the recession started to rev up in September of 2008 until November of 2010, revolving debt balances declined for 27 months in a row.

Non-revolving Debt

Non-revolving debt has been on a tear, increasing at an annual rate of 5.25% in April. Student loans, vehicle loans and mobile home loans increased by $7.19 billion for the month of April. According to the Federal Reserve, these figures do not include borrowing for mortgages, equity lines of credit and other real estate loans secured by property. Overall, revolving credit declined at an annual rate of 1.5% in April.

Economists are expecting the U.S. economy to gain some momentum in the second half of the year. Perhaps consumers will then feel more comfortable making credit card purchases and taking on debt for discretionary items. Credit card applications might also increase in the second half.

Kristie Lorette

Kristie Lorette is an award winning credit specialist and an MBA graduate of Nova Southeastern University. Her lengthy tenure includes service at Merrill Lynch where she oversaw a $300 million dollar portfolio and 16 branches. At Merrill Lynch, Kristie specialized in consumer issues related to credit and mortgages. As a writer and researcher in personal finance, Kristie is also a contributor to Yahoo! Shine, Quizzle.com, Moneysmartlife.com and many other online and print publications.