Consumer credit surged in April, US

Consumer credit surged in April in the United States to $3.18 trillion, an increase of $26.85 billion or 10.2% (annual rate), following a revised $19.5 billion rise in March, a much higher rate than analysts had forecast. Consumer credit has grown by its fastest rate in nearly three years, Federal Reserve figures show.

According to the Federal Reserve, April’s figures do not include mortgages and other debts secured by real estate.

Revolving credit, the type that is automatically renewed as debts are paid off such as credit card debt, rose by $8.8 billion in April, the fastest growth since November 2007. It had grown by $2.2 billion in March. Revolving credit is now rising by 12.3% per year, a rate not seen since 2001.

US consumer credit outstanding and percentage change (annual rate):

  • Q1 2013: 6.1%, $2,923.8bn.
  • Q2 2013: 5.5%, $2,996.4bn.
  • Q3 2013: 6.3%, $3,036.6bn.
  • Q4 2013: 5.3%, $3,087.4bn.
  • Q1 2014: 6.6%, $3,103.6bn.
  • Feb 2014: 5.9%, $3,100.4bn.
  • Mar 2014: 7.5%, $3,103.6bn.
  • Apr 2014: 10.2%. $3,129.4bn.

Auto and student loans as well as other types of non-revolving credit increased by $18 billion.

May car sales were very strong and hit a 9-year high, a sign that non-revolving credit growth will be sustained.

Good and bad news

Americans’ renewed love of debt is a good sign for an economy such as that of the US which depends on consumer spending growth, but bad news for those who believed the American consumer had learned from painful experience to become more responsible with his or her personal finances.

One of the fundamental principles of personal finance is never to borrow money on your credit card. When you purchase anything using your card you should pay it off as soon as you get your bill so you don’t end up paying the high interest rates that credit cards charge for loans.

The initial impact of accumulating credit card debt may be good for boosting the economy, but in the long-term it is damaging because money that would have been spent on purchases goes towards paying the high interest on credit card loans.

Consumers becoming more confident

Consumers are gaining confidence after years of paying off debts as job gains continue apace each month (employers created 217,000 new jobs in May) and the value of stocks and homes increase. According to the Federal Reserve, consumer spending has risen steeply especially at shopping malls and auto dealers.

Wage gains and faster job creation will give personal consumption a big push. Personal consumption increased by 2.7% in April 2014 compared to April 2013.

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