Credit Commentary

Consumer Credit rises for first time in 12 month, but Credit Card Borrowing Falls

By Administrator on Monday, March 08 2010

Total U.S. consumer credit rose $4.96 billion in January, its first rise in a year and the largest for any month since mid-2008.

The unexpected monthly gain in outstanding combined consumer credit was centered in nonrevolving credit, which includes items like loans to buy new cars and boats. The last time that overall consumer credit rose more strongly than in January was July 2008, when it jumped by $7.29 billion before beginning a lengthy string of contractions as a financial crisis swept through the U.S. economy.

The Revolving credit, a category that takes in credit cards, shrank for a 16th month in a row. Analysts forecasted that January consumer credit would contract by $4.5 billion rather than rise. Consumers have been cautious in their discretionary spending and banks have been more discriminating in offering credit and more ready to hike fees on credit card use. The decline was $1.66 billion or 2.3%, a much smaller drop than the 12.9% plunge in December.

While the nonrevolving credit rose by $6.62 billion in January after growing $4.86 billion in December. The Fed did not offer any explanation for the rise and car sales have been soft so far this year.

It was auto sales the propelled the overall consumer credit numbers. Borrowing representing car and truck loans and other types of non-revolving debt gained 5 percent, or $6.62 billion, and followed a 3.7 percent rise in that category in December.

Altogether, consumer borrowing made its first increase after 11 months of declines with an overall jump of $4.96 billion in January, a climb of 2.43 percent following a revised 2.23 percent drop in December.

The stabilizing in credit card borrowing could be the result of an all-out blitz by credit card mailed offers during the fourth quarter of 2009. U.S. households received 398.5 million credit card offers in the fourth quarter, a 46 percent increase from the 272.5 million solicitations during the third quarter, according to Synovate, which tracks credit card volumes and rates.