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Is Consumer Credit Making a Comeback?

By on March 24, 2011 in Credit

In an economic situation where consumers are still picking up the pieces, and where loans and credit accounts were near impossible to get, consumers were stashing money rather than spending it. A recent report by the Federal Reserve, however, reveals that consumer sentiment about the economy may be changing. Creditors and lenders are also having a change of heart by starting to loosen some of the tight restrictions on lending. The report reveals that consumers are opening up their wallets and spending on big-ticket items, such as vehicles and the proof is in the numbers. While the Fed only expected new credit accounts in January to increase by $3.9 billion, according to analysts, new credit accounts increased by $5.01 billion.

Good Times

These moves by lenders and by consumers indicate that the fear is going away and that the good times are returning. While it may never get back to the way that it was prior to the downturn in the economy, the economic situation is starting to normalize. Since consumers are going back to spending, it illustrates their confidence level in the economy is returning. In turn, creditors and lenders are starting to come out of the economic funk as well, which is creating a more efficient lending and credit environment that attracts consumers as well.

Positive Behavior

You may expect consumers to start spending again on the small stuff and then begin to ease into the bigger ticket items. The opposite is actually the case. Boat, vehicle and vacation purchases are up. Credit card spending is down. In December of 2010, loans for these big-ticket purchases grew by $2.07 billion, but in January 2011, these types of purchases increased by $9.26 billion. For vehicle purchases alone, January was the sixth month in a row that vehicle purchases were up, which put vehicle purchases up by 17%.

Consumers are also being choosey on the types of vehicles they’re buying. Toyota experienced a 69.9% increase in Prius sales in February 2011. Auto industry experts and economists attribute this to the fact that gas prices continue to increase. So while consumers are willing to open up their wallets again, they still want to cut expenses where they can. With a hybrid, such as the Prius, consumers can cut spending on gas.

Credit Card Spending is Down

Big-ticket items are not a problem, but consumers seem to be cutting back on their credit card spending. From December of 2010 to January of 2011, the balances on credit cards fell by $4.25 billion. This was after credit card balances from November 2010 to December 2010 increased by $2.02 billion. December of 2010 was also the first month that credit card balances increased since late in the summer of 2008.

While all of the February data is not yet in, most experts expect retail spending to increase from the January figures. Vehicle sales, especially for hybrids and cars that get more miles to the gallon, are expected to continue to rise as well. There is still a big mix of consumers that are holding tight to their purse strings and then there are those that are freely buying vehicles, boats and vacations, which indicates that things are starting to go back to normal.

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