Consumer Credit Increases $19.1 Billion in July

The mindset of “you have to spend money to make money” may be part of what helped the rate of consumer credit to expand in July. But increased confidence in the economy, better access to credit and other factors are also likely to be contributing factors.

The Federal Reserve reports that consumer credit grew at a seasonally adjusted rate of 6.7 percent and gained $19.1 billion or about $3.45 trillion. Please note that this does not include mortgage debt, but rather, the short-term credit obligations that consumers face each month. As part of the total, credit card debt rose at a rate of 5.7 percent. The rate of non-revolving debt, which covers auto loans and college loans, grew to a rate of 7 percent over the course of July.

This news is likely a direct correlation to the fact that wages and salaries rose to $35.8 billion in July compared to June’s increase of $14.3 billion. This could be a sign that employed Americans are feeling better about spending these days.  

The Federal Reserve Board releases its Consumer Credit Report each month. It estimates the fluctuations in the amounts of outstanding loans that Americans hold. It is a very important component in surveying the health of the U.S. economy because it is considered a direct measure of the sales of consumer goods.

The two types of credit reviewed are non-revolving credit and revolving credit. Revolving credit goes up and down, such as expenses incurred on credit cards. Loans with fixed terms such as student loans and car loans are in the non-revolving category. To obtain the data, banks, finance firms, retailers and credit unions, are among the entities surveyed each month. For a better analytical viewpoint, each report shows the figures for the previous three months.

The main reason that this information is valuable to investors is because it is an effective indicator of the potential for future buying trends — quite simply, American consumers drive the nation’s economy. When they stop having access to credit, and stop using that credit, it negatively affects the U.S. economy. Those types of figures are included in the section entitled, “Personal Consumption and Retail Sales”. In fact, the rate of consumer debt mirrors the GDP (gross domestic product). That measure is one of the chief indicators used to assess the state of the country’s economy. It represents the size of the economy by showing the total dollar value of the goods and services created over a set period of time.

Yet another component included within the Consumer Credit Report is the total percentage of Americans who are delinquent on their credit card payments. Economists and financial analysts keep an eye on that because sudden increases in the delinquency rate are a significant indicator that U.S. consumers may be getting in over their heads — as was the case during the last recession.

Here is a look at the latest findings on American Credit Card Debt from the website valuepenguin.com:

• The average American household has an average credit card debt of $7,697.
• The median credit card debt is much lower than the average, standing at $3,500. This indicates data being more densely populated to the “right” side of the median – meaning the average figure of $7,697 is influenced by consumers who are deeply in debt.
• 38 percent of all households carry some sort of credit card debt.
• Households with the lowest reported income, zero or negative, carried the most credit card debt. These households had an average debt of $10,308.
• There is significant variation in average credit card debt between different U.S. regions. The northeastern and western regions hold the highest mean debts, with both averaging more than $8,000 per household.