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Americans Went Credit Crazy in November—And That's a Good Thing Americans Went Credit Crazy in November—And That's a Good Thing

Americans Went Credit Crazy in November—And That's a Good Thing

by Tim Fernholz
January 13, 2012



Americans got back into borrowing in a big way in November, wildly exceeding forecasters' expectations. Consumer borrowing grew 10 percent, the largest monthly increase since 2001, pushing credit expansion back toward its pre-crash trend and giving more credence to hopes of a stronger economy in 2012.

The biggest increase came in student loans guaranteed by the government (more people go to school during economic downturns) and in auto loans, but the more interesting number involves credit-card spending.

Revolving credit—largely credit-card borrowing—increased by $5.6 billion in November. Most observers assume much of that borrowing was related to holiday shopping, which confirms recent indications that American consumers are more confident about the economy today than they have been in the last several years; willingness to borrow indicates expectation of being able to pay off creditors down the line.

Is all that credit-card debt really such a good idea? It’s generally not wise for individuals to carry a large debt balance—you want to pay your credit cards off monthly to avoid interest charges piling up—and some of the increase may be from people who borrowing because they are unemployed or not seeing an increase in their real wages.

But many economists say this is a good sign: After two years of deleveraging, we should be seeing reasonably-used credit expand—our economy and population have been growing in the same period. Borrowing per person is still lower than before the recession, which should help alleviate concerns about an indebted populace, but credit growth often indicates the start of economic growth, especially in a consumer-spending driven economy like ours.  

November’s spending is likely part of the reason we’ve seen other good economic indicators in the New Year, like more new jobs and manufacturing. The signs are accumulating—this could be the start of a virtuous cycle of economic growth.

Photo via (cc) Flickr user 401k

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