Consumer credit continues to expand, although the expansion is limited to non-revolving credit.
Non-revolving debt, such as that for college tuition or auto purchases, increased $14.3 billion in September after a $14.1 billion gain in August. Demand for automobiles remains an area of strength for the economy. Cars and light trucks sold in September at a 14.9 million annual rate, the fastest since March 2008, after a 14.5 million pace a month earlier, according to Ward’s Automotive Group.
While consumer willingness to finance these major expenditures through closed end financing remains strong and suggests a degree of economic confidence, the Fed’s measure of revolving debt (primarily credit card outstandings) has yet to show consistent growth since its decline after the peak in 2008.
Revolving debt, which includes credit cards, decreased by $2.9 billion in September after a $4.3 billion increase. Revolving credit has declined in three of the four months to September.
“Credit card spending is the easiest portion of consumer spending to contain, because it’s revolving, and because many of those related expenses are discretionary,” Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, said before the report.
Consumers certainly still remain cautious about discretionary spending. But their apparently strong willingness to make major purchases using the discipline of installment loans suggests that their aversion to using credit cards for financing remains a persistent aftereffect of the recession.
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