June 09, 2010
-
News: Fed Report; Month 19 And Counting
According to the Federal Reserve's monthly Consumer Credit report for the Month of May, 2010, Americans continue to work on paying down debt by replacing credit cards with debit and cash. The report indicated that Americans reduced their revolving credit which is typically represented as credit card spending at an annual rate of 12 percent in April. Revolving credit fell by a whopping $8.5 billion. Although Americans continue to reduce credit card debt, they have increased debt in other nonrevolving credit areas. Nonrevolving credit typically includes such things as automobile loans, recreational vehicle loans, mobile homes, student loans, trailers, or vacations. These loans may be secured or unsecured. During the month of April, Americans increased nonrevolving debt at an annual rate of 7 percent. Overall, consumer credit that does not include real estate loans, increased at an annual rate of 1/2 percent in April 2010.
The report indicates that for the 19th consecutive month, U.S. consumer credit card spending has dropped. Furthermore, revolving credit has declined drastically to its current level of $838 billion from a high of $989.1 billion at the end of 2008 with commercial banks holding the highest portion. This is a strong indication that Americans continue to work on decreasing debt and become more financially healthy. It also reflects a more cautious financial industry as credit card issuers continue to scrutinize risky borrowers.
While credit cardholders continue to rein in spending, delinquencies are also dropping. Most of the nation's top lenders reported moderate declines in delinquencies, however, continued high numbers of defaults. Since delinquencies are an indicator of defaults over the next 90 to 120 days, these numbers indicate that the country overall will begin seeing defaults drop as well over the next few months. However, the nation continues to suffer from high unemployment which could slow down any acceleration of economic growth. Bank of America's recent announcement that it plans to focus on the small, mid-size, and minority-owned business sectors could spur growth in the job market which would assist in reducing unemployment.