Figures released Tuesday show that consumer spending shot up sharply in November.This was led by an increase in credit card debt and auto loans.After showing a below market expectations increase in October, the November figures show a sharp rebound with consumer borrowing rising at an annual rate of 7.4%.This is compared to a 1% rise in October.The category which includes credit card debt, soared at an annual rate of 11.3%.This is mainly because of the continuing credit crunch, which has made bank loans and home equity lines of credit harder to get. So shoppers have turned to credit cards to finance their purchases.
Total credit went up by $15.4 billion which is much higher than the $8.5 billion expected by most analysts. Overall consumer credit increased to a record $2.51 trillion. This figure does not include debt secured by mortgages. Therefore a large part of the debt owed by most households is left out.
Analysts attribute the spike to increased consumer spending at the start of the holiday shopping season.However these figures tend to divert attention from the problems facing the US economy.Jobs in November and December rose by only 133,000, the lowest for these two months since 2002, and the unemployment rate went up to 5%. Disposable incomes, after adjusting for inflation, declined for a second straight month in November. Personal bankruptcy filings have increased 40% in the last one year. The US consumer is clearly struggling to pay off his personal debt. Policy makers are watching closely and hoping that the housing crisis does not spread further because declining asset values will affect the individual's ability to repay any kind of debt. Coupled with a weak labor market it can trigger a downward spiral which may worsen the present situation.
Many economists however view these figures as an encouraging sign. They reckon that strong consumer spending will help the US avoid the recession everybody is talking about, or at worse make it a mild and brief one. The inevitable rate cut by the Fed is expected to revive sentiment further.