Credit Card Debt Jumps: Are Consumers Struggling?

Credit Card Debt

Source: web

For the first time in five years, consumer credit climbed extensively more than forecast in May, which resulted in the biggest jump in credit card debt in the same amount of time. Now, analysts are saying this is a sure sign that consumers are struggling just to make ends meet.

The increase totaled $17.1 billion increase and far exceeds even the highest estimates by economists. It’s the largest jump this year. What’s most interesting, however, is this comes on the heels of a $9.95 billion gain the previous month. It too was more than estimated by the Fed. Revolving credit, which includes credit card spending, rose by $8 billion, the most since November 2007. The alarming aspect is that hiring is down yet again as is consumer confidence, but spending borrowed money is up.

The unemployment rate is stuck at 8.2% – which is anything but encouraging. Unfortunately, the mindset of many mirrors that of a senior strategist at TD Securities.

When the economy’s not doing well, that’s when you want the consumer to spend, and if it means borrowing to do that, then that certainly would be encouraged,

said Millan Mulraine. He also projected credit would rise by $15 billion.

The average forecasts of three dozen economists surveyed by Bloomberg News revealed estimates of an $8.5 billion increase in consumer credit. Those estimates ranged from gains of $4 billion to $15.6 billion.

Student loans, automobile loans and credit cards define non revolving debt and in May, it increased by $9.1 billion. Loans made by the federal government soared by $6.2 billion before seasonal adjustments were made. This is common since student loans make up the biggest piece of the pie in this particular arena.

Keep in mind, too, this news comes just one week following President Obama’s signatures on laws that will further extend lower student-loan interest rates. Had that extension not moved forward, those interest rates would have doubled to 6.8%. This affects close to 7.5 million college students.

On the flip side, some analysts say the jump might also be partially due to the willingness of banks to lend. If it is indicative of a better flow, it’s good news for the economy were the economy showing strong signs in other areas. Because it’s not, this could play into the fears of some that another recession looms when 2013 rings in. The problem is that if only one sector grows while the rest falter, then it means even more trouble for American consumers.

The recovery, of course, is being held back by the weak job market. Remember, payrolls grew by only 80,000 workers in June. This was far below the median estimate of 100,000 in a Bloomberg survey of economists. It’s also significantly lower from this year’s high of 275,000 in January, the Labor Department reported on July 6.

The 8.2% unemployment rate held steady in June, marking 41 consecutive months the jobless rate has been stubbornly stuck above 8 percent.; it’s also the longest stretch of elevated levels since World War II.

The final factor in these considerations is the increase in automobile sales. This particular area continues to thrive. In June, there were 14.1 million automobiles sold, which is up from May’s 13.7 million.


About Author

David is a CPA and has spent the past decade as a financial adviser helping clients meet their fiscal objectives. With an appreciation for journalism, he has spent the past few years overseeing several financial columns as well as writing two previous finance blogs. He resides on the East Coast with his wife and two sons and has guided many through the recent recession while providing a no-nonsense approach to spending and saving.

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