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    Will the US Credit Card Boom Last?


    American consumers borrowed more than forecast in April and charged a greater amount to their credit cards than at any time in the past year.

    Overall consumer credit advanced $20.54 billion after a $21.34 billion gain in March, the Federal Reserve reported on Friday. Economists had predicted a $16.0 billion increase.

    Revolving credit, primarily credit card balances, soared $8.59 billion in April following a $4.88 billion boost in March.  It was the second largest increase since late 2007, topped only by the $9.94 billion gain last April.

    Non-revolving credit  which includes student loans, the fastest growing category of borrowing, and car loans but not mortgages,  added $11.95 billion in April, less than the $16.47 billion increase the month before and the smallest  gain since November 2013. 

    Consumers had reduced their credit card balances by $2 billion each in January and February but returned to spending in March

    This report signals Americans may be returning to their more free spending way of before the financial crisis.

    At the end of the recession in June 2009 consumers had concentrated on reducing their credit balances in the wake of the worst economic downturn and job losses since the Depression.

    For all of 2010 outstanding credit card debt dropped by $5.23 billion each month. In comparison in the decade before the year of the crash (2008) credit card balances grew an average of $3.53 billion monthly.

    Americans resumed buying on credit in 2011 with balances rising $0.146 billion each month. In the years that followed the willingness to assume debt grew; in 2012 revolving debt balances added $0.389 million each month; in 2013 $1.022 billion, and in 2014 $2.65. So far this year the monthly average has been $2.3 billion.

    It is only in the last two reported months, March and April, that the average of $6.74 billion in monthly additions to credit card balances have surpassed those of the pre-crash decade ($3.53 billion). 

    It may be that consumers are finally more willing to use their plastic for large-ticket purchases as the job market continues to produce new employment, interest rates stay low and rising home and stock values bolster household finances. 

    Or it may be that the large gains in March and April are just the balance of the January and February reductions. The four month average of $2.37 billion, even with March and April’s large jumps, is still lower that 2014's $2.65 billion.   

    Consumer have splurged for a month or two several times in he past five years most notably last April and May when credit card balance rose $6.15 billion each month. In 2012 balance rose $5.57 billion in May and $4.80 billion in August, though each month was immediately followed by a negative month. 

    The American consumer was certainly frisky in March and April, but it will take yet another month or two to see if the trend is concrete enough to fund a burst of consumer led economic growth.  

    Joseph Trevisani

    Chief Market Strategist

    WorldWideMarkets Online Trading

    Charts: Bloomberg

    con credit june 8

    credit revolv june 8

    credit non rev jun3 8

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