Debt Spending Gains Steam, But Which Kind?
Credit card issuers tend to benefit when consumers are more willing to utilize the debt available to them — but not always.
Researchers at the Cleveland Fed recently reported that consumer demand for debt spending was back on the rise in the U.S. After outstanding balances shrank from 2007 to 2010, new data from the Senior Loan Officer Opinion Survey suggested consumers were feeling ready to borrow once again.
But a more detailed update from other researchers at the same Fed branch suggests consumers aren’t yet reaching for their credit cards more frequently. In fact, the decrease in revolving credit (which includes credit card balances and unsecured credit lines) that began around 2009 has continued into this year.
What Yuliya Demyanyk, Matthew Koepke, and Emily Burgen are able to show here is that some debt spending is on the rise — auto loans and durable goods purchases, for example (nonrevolving credit) — but not all.
Despite the fact that the Dow Jones Industrial Average is up roughly 30 percent from the start of 2010, and nearly double what it was on March 6, 2009, revolving credit spending tends to be driven by two key factors, the Fed says: employment rates, and consumer confidence. Those two metrics remain in the doldrums.
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