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Friday, December 09, 2011

Consumer Credit: End of Spiral

It appears that the three-year, near-death spiral in consumer credit has finally come to an end, according to the latest data from the Federal Reserve released on December 7.

Nonrevolving consumer credit had hit bottom in May of last year, and inched up unevenly over the past year-plus. But it's also worth noting that nonrevolving credit has been stagnant over the past three months.

Meanwhile, revolving credit - overwhelmingly credit cards - continued to slide effectively until August of this year, though the dissent slowed and was uneven over the last several months.

Revolving credit has grown for two straight months and in four of the last six months. Yet, the October level was still below the July 2011 level, and was far below the all-time high hit in September 2008.

Consumers obviously are still reining in debt and do not feel confident about jobs and the economy. This, of course, continues to limit the performance of small businesses, especially on the retail end of things.

This also partially reflects restrained start-up business activity, which often gets funded through the use of credit cards.

But even if consumer credit is just bouncing along the bottom or at least starting a slow climb up, it's a better sign for the economy than the long freefall experienced over much of the past three years. Now, hopefully, the question turns to the rate of recovery.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.His new book is titled "Chuck" vs. the Business World: Business Tips on TV.

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