Research and Statistics

Consumer debt sees biggest jump in a decade


Consumer debt saw its biggest growth in a decade in November, according to new data from the Federal Reserve, as consumers headed into the holidays ready to spend

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Consumer debt saw its biggest growth in a decade in November, according to new data from the Federal Reserve, as consumers headed into the holidays ready to spend.


Americans’ credit card debt shot up by more than $5 billion in November — the third straight monthly increase and the biggest jump in four years. Still, credit card debt is far below record highs set a few years ago. The chart below graphs Americans’ credit card debt totals from their peak of $972.2 billion in September 2008 through November 2011, when it rose to $798 billion.

The Federal Reserve’s latest G.19 consumer credit report showed a nearly 10 percent increase in overall consumer debt in November to $2.48 trillion. It’s the biggest percentage increase in overall debt since November 2001.

The report showed an 8.5 percent rise in revolving debt as more consumers pulled out their cards. Revolving debt, which is made up almost entirely of credit card debt, rose by more than $5 billion in November to $798.3 billion. That jump was the largest seen since February 2008, in terms of percentages.

“It was a very strong month and that reflects a broad base in consumer spending,” says Keith Leggett, senior economist and vice president at the American Bankers Association.

Consumers traditionally spend just ahead of the holidays; but in 2011, they appeared to do more of their holiday shopping in November, when the biggest sales occurred just after Thanksgiving. “Number one, we had an early Thanksgiving,” says Leggett. And that led to “an early start to the Christmas shopping period … That gave us several extra days of stronger spending on the part of consumers. Throw into that Cyber Monday [which] also fell in November this year.”

The Fed’s monthly G.19 consumer credit report also looks at nonrevolving debt, which includes auto loans, student loans and loans for mobile homes, boats and trailers. Nonrevolving debt went up 10.7 percent to $1.68 trillion, its biggest percentage increase since February 2005.

The increases in both revolving and nonrevolving debt combined to push the overall debt number higher.

Rise in debt could mean consumers are feeling more confident to spend
“Overall, American households are gradually feeling better and so are more likely to pull out their cards and make purchases,” says Gregory Daco, senior economist with IHS Global Insight. However, he cautions, “The magnitude of the jump [recorded by the Fed] has to be taken with a grain of salt. We’ll have to wait until next month to see if these numbers are confirmed or revised.”

That said, if the numbers are confirmed, it could be a sign that consumers are ready to start spending on purchases they put off during the recession, say experts. “A household has a certain amount of debt on their hands, and they have either completely deleveraged or partially deleveraged,” said Daco. Deleveraging, in industry parlance, means shedding debt. “And if their financial situation is stable or their job is stable, they may decide to purchase a new automobile if they’ve been holding off or they may have bought more gifts [for Christmas].”

It appears that may be happening. Automobile sales rose significantly in November as more consumers purchased new cars just before the holidays. “People who have delayed making purchases are now feeling a little more confident about their job situation and about the economy and have decided to open up their wallet and spend,” says the ABA’s Leggett.

Retail sales also rose 0.2 percent in November, according to estimates from the Commerce Department, powered by strong sales on Black Friday and Cyber Monday.

The National Retail Federation’s numbers paint an even rosier picture. The group revised its expectations for holiday spending after recording a 4.5 percent rise in year-over-year spending in November. “Consumer spending this season has surpassed expectations,” said NRF Chief Economist Jack Kleinhenz in a statement. But, he added, “Many shoppers continue to stick to their budgets and buy only what they need.”

November’s growth in sales occurred at a time when unemployment fell to 8.6 percent, the lowest since March 2009. However, despite the growth in jobs, overall consumer spending was modest in the last months of 2011, note experts, as many shoppers remained wary of spending more than they could afford — even during the holidays.

Experts say that November’s rise in credit card balances may also be caused by consumers spending on items they couldn’t afford in the early years of the recession. “After 2008, people put off expenditures because they were worried,” says Linda Sherry of Consumer Action. “It could just be naturally that things got old and now seems a more promising time to make those consumer purchases.”

Or consumers may just be tired of not spending, say experts. “Consumers who are trying to reduce the amount of debt that they’re holding have really been austere with regard to their spending,” says Leggett. “They have really buckled and they have said, ‘Enough with this pain,’ and they have decided it’s time to reward themselves.”

That said, many consumers still aren’t willing to build balances they can’t repay. “People are feeling a little more confident about the spending,” says Sherry. But they’re also “more cautious about money management now.”

Sherry says the past four years have reshaped how Americans’ use their money, but it hasn’t damaged their optimism.

“The biggest thing is the uncertainty. People don’t keep the same job forever, they don’t have the same job security they once had. People just can’t plan the way they did before.”  But they remain optimistic about the future. “You have to have a lot of guts to keep on going and Americans do have a lot of guts. They have optimism. That’s recurring now,” she says.

Sherry notes that despite many experts’ lingering doubts about the economy’s growth, “people are starting to filter out some of those messages and are starting to feel that maybe we’ve come through the worst of it and … can spend if [they] have the ability to repay.” But she adds, “I don’t think they’re going out on a limb the way they were in 2008.”

And that could be a good thing. “People are optimistic on the one hand and cautious on the other, and that’s a wise way to look at your finances,” says Sherry.

However, notes Sherry, the steep rise in student loan debt, which partially drove November’s jump in nonrevolving debt, could foretell serious problems for consumers in the future. “We as consumer advocates believe student loans are the new credit card of the past couple of decades,” says Sherry. “That is something we’re super-concerned about, even more than about card debt at this point.”

More student debt “means people are finding it more and more difficult to finance their children’s education,” adds Daco. “That’s not such a good thing.”

Finally, say experts, the rise in debt could spell trouble for banks as well — especially as more consumers struggle to repay their swollen card balances. “Typically what happens is you’ll see a growth in balances during Christmas and then people become a little remiss with their payments,” says Dennis Moroney, research director for Tower Group. “Probably somewhere in April or May, [you’ll] start to see delinquencies popping up from the Christmas season.”

See related:8 things you must know about credit card debt

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