Consumer Borrowing Rising, But Confidence In Economy Remains Frail
By Jeffrey Green (@epaymentsguy)
With heightened belief that the U.S. economy is improving, consumers are borrowing once again. Many, however, are unprepared should an emergency arise, suggesting consumer confidence actually is quite frail, an analysis of two separate research reports released this week suggests.
Aggregate consumer debt, including mortgages, credit cards, auto loans and student loans, increased during the fourth quarter to $241 billion, or by 2.1 percent from the previous quarter, the largest quarter-to-quarter gain seen since the third quarter of 2007, just before the beginning of the Great Recession, according to data the Federal Reserve Bank of New York released Feb. 18. As of Dec. 31, total consumer indebtedness was $11.52 trillion. For all of 2013, year-over-year total indebtedness rose $180 billion, or 1.6 percent, the first to register an increase since late 2008.
Despite the growth, overall consumer debt remained 9.1% below the Q3 2008 peak of $12.68 trillion, according to the New York Fed.
Consumer are showing an increased proclivity to pay on their loans, as delinquency rates improved for most loan types in Q4 2013. As of Dec. 31, 7.1 percent of outstanding debt was in some stage of delinquency compared with 7.4 percent the previous quarter, the report notes.
Credit cardholders went against the grain a bit. During last year’s fourth quarter, consumer credit card debt rose $11 billion from the previous quarter, and the 90-day delinquency rate on card balances increased slightly, to 9.5 percent, according to the New York Fed.
Credit cardholders, however, are not saving adequately to protect themselves in case of emergency, according to a separate February 2014 study report by Bankrate.com.
Indeed, Americans’ comfort levels with their savings, typically the most dire aspect of financial security, this month dropped to their lowest level in a year, as those consumers who are less comfortable with their savings outnumbered those who are more comfortable by a two-to-one margin, Bankrate.com reported this week.
The Bankrate.com report found that 51 percent of consumers have more emergency savings than credit card debt, the lowest percentage since the company began tracking the issue in 2011. (see chart)
At 28 percent, more than one in four Americans have more credit cad debt than emergency savings, the highest in four years. Seventeen percent of consumers have neither emergency savings nor credit card debt, according to the Bankrate.com February report.
Americans between the ages of 30 and 64 are most likely to have more credit card debt than emergency savings, according to the report. In a statement, Greg McBride, Bankrate.com’s chief financial analyst, suggested this reflects stagnant incomes, long-term unemployment and high household expenses “that are hampering the financial progress of many Americans.”
It’s not easy to hold Americans back for very long, however. “A lot of Americans live at their limit to begin with,” he told PYMNTS.com in an interview. “American consumers are very good at spending. Their recent frugality is a forced frugality that will prove to be a temporary phenomenon. It won’t be long before people resume their headier spending once their incomes go up.”
Bankrate.com’s Financial Security Index fell to 99.3 in November, its lowest level since November 2013 (see chart).
Readings below 100 indicate lower financial security from the previous year. Two of the five components – job security and net worth – were higher than a year ago, while two others – debt and overall financial situation – were neutral.
David Evans, chairman of the Global Economics Group, tells PYMNTS.com the numbers aren't surprising given the uneven and still tepid recovery.
“Many working-age Americans have been sidelined from the labor force or have taken significant pay cuts,” he said. “While many people are doing better, and spending and borrowing, many are also still on thin ice."