Consumer debt surge highest since 2001

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Middletown Journal
By: Randy Tucker
May 14, 2012

Consumer debt surge highest since 2001

U.S. consumers continue to reach for their credit cards and sign off on auto loans at a brisk clip, boosting borrowing twice as fast as most economists had predicted.

Total U.S. consumer credit grew by $21.36 billion in March, according to the latest figures from the Federal Reserve. That was the biggest month-to-month jump since 2001 led by a surge in auto loans, personal loans and student loans, which combined for about $16 billion of the increase.

Credit card debt shot up, too, climbing by $5.1 billion after a $2.3 billion decline in February, according to the Fed.

As consumers increasingly leverage credit, local economists and financial experts continue to debate whether the turnaround from a lengthy period of austerity is good for the economy.

On one hand, a certain amount of consumer debt is necessary for a healthy economy since consumer spending accounts for about 70 percent of economic growth.

But overspending consumers strung out on easy credit were among those hit hardest by the financial collapse of 2008, and some experts fear consumers could be heading for the same financial cliff they fell off at the start of the recession.

"We don't see it as much now as we did before the recession, but there are some individuals who are overextending themselves and doing just undisciplined kinds of things with credit," said Melodee Shiels, director of Consumer Credit Counseling in Dayton. "But the bulk of our clients are using credit just to get by and meet day-to-day expenses. Eventually, you reach your limit, and then you end up in a downward spiral because you can't even make minimum payments.''

In Ohio, the average credit card balance climbed to $3,648 in March, up more than $190 from year ago, according to the latest figures available from Experian, one of the three main credit bureaus. Outstanding credit card balances ticked up at an even faster rate in the Dayton area, climbing to $3,602 from $3,212 during the same period.

Sheryl Moore of Greenville said she never keeps a balance on her credit cards, but she's been more inclined to pull out the plastic as the economy has improved.

"I'm definitely less nervous about spending than I was two years ago, but I still pay off my credit cards at the end of the month,'' said Moore, an expectant grandmother who was shopping for baby clothes Monday afternoon at the Dayton Mall with her husband, Tom, and the rest of her family.

The Moores both work in the auto industry, and the rebound in auto sales has benefited the couple financially.

Still, "we don't believe in debt," Sheryl Moore said. "The only debt we have now is our mortgage, and we hope to get rid of that soon."

James Brock, a Miami University economics professor, said the surge in consumer borrowing can be viewed one of two ways: "Some people would argue that it's an indication that things are not good because people have had to go deeper into debt to get by. But the other side of the story is that maybe things are getting better and people may feel a little safer about spending more than they did before. It's really a glass-half-empty or glass-half-full question."

Brock thinks the glass is half full. "The economy is getting better," he said. "It's getting better in fits and starts; sometimes it's two steps forward and one step back. But if you look at most of the broad statistical gauges of the economy, they're generally trending up."

Brock noted that retail sales, car sales, even home sales have all started to pick up in recent months.

"I would look at (consumer credit) as another reinforcing measure of the recovery of the economy," he said.

Brock is not alone. More consumers also seem to think the economic glass is half full rather than half empty.

U.S. consumer sentiment has risen to its highest level since January 2008, according to the Thomson Reuters/University of Michigan's preliminary May reading on the overall index of consumer sentiment. The index rose to 77.8 earlier this month from 76.4 in April, beating forecasts for a small decline to 76.2.

The monthly survey found also 65 percent of consumers thought buying conditions were favorable, the highest level in more than a year.

While many households are feeling more upbeat about the economy, a significant number have simply been compelled to make purchases -- regardless of their financial situation.

Susan Queen, a U.S. mail carrier in Bellbrook, decided to break down and purchase a pair of badly needed work shoes Monday. "My union shoes hurt, and I didn't have any others. I had to get some shoes for work," she said.

David Rothstein, a researcher at Policy Matters Ohio, a public policy think tank in Cleveland, said Queen is typical of people who have delayed spending on necessities.

"People have waited and waited to see if the economy would get better,'' he said. "They've put off different purchases like moving or buying a car, but people can no longer wait to make those decisions.

"They don't have the money anymore to pay up front, so they just have to borrow,'' he said. "And we saw what that did during the mortgage crisis.''

Ohioans are especially vulnerable to financial calamity as a result of overspending, according to the Corporation for Enterprise Development's Assets and Opportunity scorecard.

Nearly a third of Ohio households are asset poor, or have little or no financial cushion to rely on in case of emergency. Ohio ranked 37th out of 50 states and the District of Columbia for the financial security of its residents.

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