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Americans’ credit card love affair has started cooling off. It is not clear whether the banks or the consumers have decided to go slow but statistics reveal that the borrowing is on the decline. This could be due to a large number of factors affecting the economy.
Firstly the fact that the job market is yet to stabilize has led to many families struggling to find a secure source of income. Secondly there is less spending in a bid to also cut down on the existing debts and close the balances.
The Federal Reserve’s data collected from 1968 to September 2008 revealed a near uninterrupted rise of the amount of revolving, or credit card, debt outstanding for US consumers. The first steady decline was experienced with the collapse of the Lehman Brothers and the following credit crisis. The revolving credit outstanding is 15% lower than the peak level and the last 20 months has shown a monthly decline. This could spell more trouble for the economy which is still largely in the throes of recovery and is yet to make a full come back.
The Feds reported on Thursday that the revolving credit declined by $7.32 billion to $830.83 billion in May. Now, why has it dropped? It could be that the weakest job market is leading more people to default on their debt. After the onset of the credit crisis, revolving credit began to contract as delinquencies soared. But present conditions show an improvement in the delinquency rate, yet decline in the borrowing rate which looks rather troublesome.
This leaves us with two speculations, either the Americans are paying down debt or banks are offering less credit to consumers. It is clear that both are happening to a certain degree to balance the situation out. Money paid by consumers to credit comes out as disposable income. The US saving rate has risen slightly above the rates of 2000s but is still far below levels recorded in the 1970s and 1980s as is noted by the Commerce department.
The Fed’s senior loan officer’s survey claims that banks continue to tighten lending standards and terms for credit cards, and also reductions in credit limits. All these restrictions have come into force a year after the credit crisis hit.
Credit card love affair seems to be cooling off from both sides and banks seem to be more inclined to take a break.
