Are Consumers Dialing Down Their Debt Loads?


Consumers in the United States continued to take on additional debt in November, but at a slower pace than many analysts expected. According to a new report from the Federal Reserve, total consumer credit outstanding grew at a seasonally adjusted annual rate of 4.8 percent to $12.32 billion.

Non-revolving credit, which mostly includes auto and student loans, lead the way as usual, climbing $11.9 billion. Revolving credit, such as credit cards, increased by only $458 million, after surging nearly $4 billion in October.

Overall, the results were weaker than expected. Economists estimated total consumer credit outstanding to rise by about $15 billion, instead of just $12.3 billion. Furthermore, November’s increase was the smallest monthly gain since April. October’s consumer credit growth was also revised lower to $17.9 billion from the initially-reported $18.2 billion.

In general, increases in consumer credit indicate a willingness to spend on the part of consumers, which is prerequisite to economic growth. When consumers borrow within their means in order to purchase cars, go to college, or buy a house, the economic engine putters on contently. The obvious downside risk is that when people borrow beyond their means and assume too much debt relative to their income, they may be forced to stop spending simply to pay off debt. This is a negative economic catalyst.

One way to measure whether consumers are borrowing within their means is to look at debt service payments as a percent of disposable personal income (personal income that is left over after taxes). After peaking at nearly 13.5 percent in the fourth quarter of 2013, this rate plummeted in the wake of the crises and currently sits below 10 percent, the lowest since at least 1980, when the Federal Reserve began tracking this data.

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