Now that the U.S. economy is most of the way through the second quarter of 2012, it is possible to identify some trends and look ahead to changes consumers might expect in debt during the next quarter, according to the Freedom Financial Network Quarterly Comment on consumer debt and credit issues.
The biggest trend over the past few months can be described as spending stagnation, said Kevin Gallegos, vice president of Phoenix operations for Freedom Financial Network (FFN). Consumers are weary, and shy of spending, because they arent seeing changes in employment, housing prices remain on the low side, and stock markets globally have been a little rough and tumble. They are not willing to gamble on an unsure future.
For these reasons, Gallegos pointed out, consumers have continued to focus on eliminating revolving debt, which includes credit card debt. With interest rates remaining low, however, consumers who have been able to obtain credit have continued to add to non-revolving debt, such as vehicle loans and education loans. That debt has increased every month for more than a year.
In coming months, Gallegos and FFN co-founder and CEO Andrew Housser foresee continuing instability, although they agree with many analysts that housing prices are hitting bottom in some markets, which means home values may begin to increase somewhat in the future. This position is supported by the latest economic outlooks, which showed home values in March sporting the smallest decline since December 2010, and homebuilders having their strongest spring selling season in seven years.
Housser added, Of all potential debt, non-revolving debt is usually the so-called healthiest debt, because it often signifies an investment in ones future. Nevertheless, with no strong signs of job recovery or a strengthening economy, we caution consumers to avoid any amount of excessive debt.
Recent financial data as reported:
1. Total consumer debt rising, rising, rising. Data from the Federal Reserve Board show that total consumer debt has been climbing for at least six quarters. In April, the most recent month on record, total consumer debt (excluding mortgage debt) was $2.55 trillion. That number was $78.2 billion higher in April than in March according to a new flow calculation introduced this month by the Federal Reserve Board. The flow number examines fluctuations in credit based solely on economic activity and excluding changes due to calculation methods.
2. Non-revolving credit most responsible for higher debt. For more than a year (from March 2011 through March 2012, the most recent data available), non-revolving consumer debt which includes auto and R V loans, and education loans has climbed every month. Non-revolving debt reached another all-time high of $1.73 trillion in March.
3. Revolving debt lower in March. In contrast, total consumer revolving debt which includes credit card debt has been in a cycle of decline for three months, after slowly rising throughout the late summer and fall and into the winter holidays. The new total revolving debt stood at $790.1 billion in March. Again, using the flow methodology noted in No. 1 above, revolving credit was actually $41.3 billion lower than in March.
4. Personal income rises slowly. The Bureau of Economic Analysis reported that personal income rose by 0.2 percent in April, the most recent data available. Disposable personal income increased by the same percentage, 0.2 percent.
5. Spending increased slightly more than income. In April, personal consumption expenditures rose by 0.3 percent.
6. Employment numbers unchanged. The U.S. unemployment rate remained essentially unchanged in May at 8.2 percent. That is a year-over-year improvement of 0.9 percent from the 9.1 percent rate in May 2011.
The FFN Quarterly Comment pulls together significant statistical releases and provides quarterly comment on timely debt and credit issues that matter to consumers. To schedule an interview with Kevin Gallegos or Andrew Housser, contact Aimee Bennett at 303-843-9840 or aimee@faganbusinesscommunications.com.
