Consumer lending, especially for housing, has been slow to recover from the recession. Image from Wikimedia Commons.

Consumer lending — loans lent to individuals — has been slow to recover from a two-year lull. Loans such as mortgages, auto loans, home equity lines of credit and personal loans aren’t impossible to get but are harder to get approved for. Banks are loathe to repeat mistakes that made them run for government cover.

Federal Reserve data indicates borrowing has slowed

Data compiled by the Federal Reserve indicates that debt levels from consumer loans have been falling since the summer of 2008, before the recessionary period began, according to Bloomberg. Total consumer debt, which includes most loans that lenders make to consumers such as personal loans, installment loans and auto loans, but excludes mortgages, stands at $2.4 trillion. That is 6.6 percent below July 2008, the peak period before the recession. Debt from housing loans has declined by more than $530 billion since 2008 with $10 trillion in housing debt still owed by homeowners in the United States. Fed Chairman Ben Bernanke was recently quoted as saying that conditions for credit markets were tight and that he didn’t expect a significant turnaround for some time in the housing market.

Housing market still lagging

The recession began in the housing market, and the return to healthy levels of activity in the housing market has been pursued for some time. Though improvements have been made, there have also been setbacks. From December 2010 to January 2011, home sales increased by a modest 2.7 percent, according to MSNBC, but the share of first time home buyers was only 29 percent of all purchases. Foreclosure properties made up 37 percent of the homes that were sold, and 32 percent of all purchases were made with cash. Given that a high number of foreclosure properties are being sold, a lot of purchases are being made with cash. The Case Shiller Index noted that high-end home sales are rising again, according to CNN, and there is every indication that this is a fantastic market for investors, not for prospective middle-income homeowners.

New models emerging

An increasing amount of regulations, such as the CARD Act and the proposed cap on interchange fees, makes it harder for large financial institutions to be able to turn the kind of profits they are used to. Some consumer credit may not be as easy to come by in coming years. For instance, since the CARD Act was enacted, free checking accounts have been disappearing from major banks, and JPMorgan Chase has been hinting at capping debit card purchases at $50 to $100 if the interchange fee cap is passed.

Sources

Bloomberg

MSNBC

CNN

Consumer borrowing rose from non-revolving credit sources, as fewer people are borrowing money by using credit cards. Photo Credit: MoneyBlogNewz/Flickr/CC-BY-SA

An increasing number of people are borrowing money, but more people are getting personal loans rather than using credit cards. The Federal Reserve released data that show consumer borrowing rose by several billion dollars in January, but it was from non-revolving credit sources. Credit card use dropped at the same time.

Debt levels rise as consumer borrowing increases

Americans are borrowing money from loan lenders again, and it is reflected in the recently released report by the Federal Reserve detailing economic activity from January of 2011, according to Business Week. The increase in consumer debts in January was fueled by non-revolving credit sources, such as personal loans or auto loans, instead of revolving lines of credit or credit cards. Non-revolving debt increased by $9.26 billion, but consumer debts increased overall by an estimated $5 billion, in the fourth straight month of increasing numbers of people going to loan lenders for credit. The increase was fueled by strong auto sales, according to MSNBC, as the amount of money lent for auto purchases increased for the sixth straight month.

Credit card use falls

Credit card use has been plummeting for some time, as the amount of debt held by Americans on credit cards declined by $4.25 billion. Credit card debt has fallen in 28 of the past 29 months, but it increased in December 2010 for the first time since December 2008. Credit card charge-offs, or debts written off by credit card companies, declined to 7.45 percent for January 2010. Delinquencies and charge-offs have been declining for the past five consecutive months. Consumers appear to have used their plastic to cover a December shopping spree but paid down the balance quickly. Credit card interest rates have been steadily rising as new regulations prevent banks and card companies from applying fees surreptitiously, forcing them to raise fees and interest rates up front.

Student borrowing increases

Part of the increase in non-revolving debts for the month of January 2011 was a $24.9 billion increase in student loans from the federal government. However, students are likely to begin borrowing more from private lenders than from the government in coming years, as the looming federal budget cuts are likely to decrease available capital. The federal budget recently submitted by the House of Representatives cut more than $5 billion from the Pell Grant program, according to the Christian Science Monitor, though the Pell Grant program is expected to run a $20 billion deficit starting next year. A college education is still viewed as one of the most worthy investments a person can make, though the cost has been rising dramatically for years.

Sources

Business Week

MSNBC

Christian Science Monitor

Just like in the "Rime of the Ancient Mariner," fewer people want an albatross around their neck like debt. Image from Wikimedia Commons.

Everyone has heard the phrase “keeping up with the Joneses,” and it means doing the things everyone else is doing to keep status. This instinct is what drives people to do things like get flat screen televisions, iPhones, riding lawnmowers and so forth. Well, according to the Federal Reserve, the Joneses are getting debt settlement relief these days instead of putting more stuff their credit cards.

Household debt falling, says Fed

The Federal Reserve recently released new data about the levels of household debt in America. It seems that once the recession came, people decided to tighten their belts and pay things off. (A little debt consolidation never hurt anyone.) According to the Wall Street Journal, consumer debt levels have fallen for seven straight quarters. Second quarter of 2010 showed a 1.5 percent reduction from the past quarter and a 6.5 percent reduction from the previous peak, in third quarter of 2008. That’s $178 billion of debt that’s been paid off in the last three months. That’s a lot of people essentially giving themselves a cash advance every month.

A few caveats

Falling household debt and an increased savings rate isn’t the entire picture. Not only did consumer debt go down, the delinquency rate went down as well. This quarter was also the first instance of delinquent debt being reduced, which fell by 0.5 percent. However, as a corollary, bankruptcies increased by 34 percent. It seems fewer people are using payday loans to keep up with paying for credit cards, as 272 million accounts were closed and only 161 million opened. At this rate, credit card companies might need an emergency loan themselves.

Getting rid of debt

Overall, more Americans are trying to get rid of debt. More people are trying to pay credit cards off than get new ones. Unfortunately, though, more people are filing for bankruptcy. Still, there are a lot of positive signs that people want to stay out of debt, preferring the security of cold, hard, cash.

Further Reading

Wall Street Journal

Consumers are cutting up their credit cards, as they're relying more on personal loans. Image from Wikimedia Commons

During economic recessions, you expect people to tighten their belts and cut down on their use of credit, of any form.  It is certainly true that some tightening has happened, but it isn’t as much as you’d think.  It is instead the case that some forms of consumer credit are being used more, while others are being used less.  Credit cards are being paid off, and fewer utilized, but personal loans are being utilized more.  One of the best forms of debt relief is to pay debts, and it seems that consensus is to pay off the cards and be on manageable plans for everything else.

Personal loans on the rise

For the second time in the last 14 months, there was an increase in certain amounts of consumer debt in the United States.  The credit products that were on the up and up were non-revolving sources of credit, such as student loans and personal loans, according to MarketWatch.  The amount of non-revolving credit, such as personal loans, went up $9.4 billion for April.

Credit cards fall

However, one of the most common sources of consumer credit is beginning to slip.  Credit card debt fell more than $8 billion in April, and the overall amount of credit card debt held nationally has not gone up since it peaked in June of 2008.  Non-revolving credit sources, however, have posted gains twice since then.  The result was an overall gain in consumer debt of slightly less than $1 billion overall, a gain of half of one percent.

Increase in other debts

The debt held by the government rose less than $2 billion, and the bulk of those loans are student loans.  The appearance of this economic data would be that consumers are becoming skittish about revolving sources of credit, and would rather stick to installment loan payments over time.  This is not unreasonable, as making the minimum payments on some credit cards can take years to pay off.

The Federal Reserve reported that an unexpected consumer borrowing increase in March is another sign that an economic recovery is underway. Flickr photo.

Consumer credit increased in March 2010, the Federal Reserve reported Friday. The $1.95 billion increase in consumer borrowing surprised economists, who had expected consumer debt to continue a decline that resumed in February after a January spike in money loans. The unexpected March consumer credit statistics mark only the second time the Fed has reported a consumer confidence increase in 14 months. Some believe that consumer spending, making up 70 percent of the economy, is trending to a level that could help strengthen economic recovery.

Consumer confidence on the upswing

News of the March consumer credit increase comes hot on the heels of a Friday Labor Department jobs report announcing that 290,000 jobs were created in April. The jobs increase was accompanied by an increase is the unemployment rate. However, the report said the improved economic outlook is motivating people who had quit looking for jobs during the recession to resume looking for work.

Consumer debt figures a surprise

The increase in consumer credit statistics surprised many economists. Bloomberg reports that a survey of 33 economists had forecast consumer debt in March would drop further from an $11.5 billion decrease reported in February. Projections ranged from a consumer debt decrease of $8.5 billion to an increase of $8 billion. Economists surveyed by MarketWatch expected consumer credit to decline by $4.5 billion in March. The March gain represents a 1 percent rise at an annual rate following a 3 percent drop in February and a 3.2 percent January increase.

Federal Reserve consumer credit statistics

Federal Reserve Consumer credit statistics show that non-revolving debt, including loans for cars and mobile homes, rose by $5.1 billion in March. Bloomberg reports that auto sales in the U.S. rose to the equivalent of 11.8 million annually in March — the strongest performance since August 2009, according to industry statistics. The pace had slowed to 11.21 million in February. Auto sales in March were boosted by Toyota incentives the company offered to make up for record recalls. Ford led U.S. automakers with a 40 percent sales increase. Sales at General Motors increased 21 percent.

Federal Reserve Consumer credit statistics for revolving debt, such as credit cards, fell by $3.2 billion in March. The central bank’s report doesn’t cover borrowing secured by real estate.

Consumer borrowing will fuel recovery

The low rate of personal savings in the United States has aroused a sense of alarm for years. But the Associated Press reports that in the wake of the great recession, economists now say that consumer debt needs to stabilize and grow to prevent derailing the modest recovery under way, although they expect that the rebound will be restrained by tighter credit conditions imposed by many banks.

Weakened incomes plus increased spending equals increased consumer debt

Although there are signs that things are picking up, many experts believe recent economic growth cannot be sustained without increased spending by consumers. Consumers may be doing just that, thanks in some part to payday lenders.

The Federal Reserve has reported that in January 2010 U.S. consumer debt increased for the first time since January 2009. According to MarketWatch, in January 2010 the total seasonally adjusted debt (a measure of total debt incurred by individuals) rose at an annual rate of 2.4% and increased by $4.96 billion, for a total of $2.46 trillion.

A minority opinion is borne out

Based on a survey of economists, MarketWatch had expected a $6 billion decline in January. Instead, January 2010 marked the largest increase in consumer debt since January 2008. Not all the experts agreed with the forecasted decline and a few even predicted an increase.

According to MarketWatch, Ed McKelvey, an economist for Goldman Sachs believed that weakened incomes combined with recent reports of increased consumer spending could only mean that consumers were purchasing more items on credit. The Federal Reserve report concerning the January 2010 debt increase now bears that out.

Personal loans are the main source of the increase

Non-revolving debt rose by 5% or $6.62 billion to make up the lion’s share of the overall debt increase. Non-revolving debt includes such things as such as auto loans; personal loans including easy cash loans, overnight loans, and other types of internet loans; auto financing; and student loans. Not surprisingly, given all the recent consumer-unfriendly changes concerning credit-card borrowing, such as reduced lines of credit and higher interests rates, credit-card debt decreased. In fact, January 2010 was the 16th consecutive monthly decrease in overall consumer credit-card debt. Credit-card debt dropped by 2.4% for a healthy decrease of $1.67 billion, bringing the national total down to $864.4 billion.