Americans Go on Borrowing Spree

All species of consumer credit increased during the fourth quarter of 2011, according to the Federal Reserve on Tuesday, lending credence to the notion that not only are consumers feeling more confident about the economy these days, they're backing up that confidence with their wallets.

All species of consumer credit increased during the fourth quarter of 2011, according to the Federal Reserve on Tuesday, lending credence to the notion that not only are consumers feeling more confident about the economy these days, they’re backing up that confidence with their wallets—or rather, their plastic. Consumer credit as a whole increased at an annualized rate of 7.5 percent during the fourth quarter.

During recent quarters, most increases in consumer credit tended to be nonrevolving, especially car loans spurred the growth of car sales in 2011, but also student loans, spurred by the fact that it’s sometimes easier to go to school than find a job. Such nonrevolving borrowing grew at an annualized 9 percent during 4Q11, but it wasn’t the only driver in the upsurge in consumer credit during the quarter. Revolving credit, the sort most represented by credit cards, was also up 4.5 percent for the quarter. The figures are seasonally adjusted to take into account the normal credit surge to pay for Christmas.

In total, U.S. consumer credit is creeping back toward its 2007 high of $2.52 trillion. Despite population growth since then, total credit barely budged over $2.4 trillion in 2010. For 2011, the Federal Reserve estimates that total consumer credit will be about $2.45 trillion, which doesn’t look too different from the 2007 figure, but it represents a $50 billion increase.

Separate indexes point to increasing optimism

The IBD/TIPP Economic Optimism Index, which is published monthly by Investor’s Business Daily Inc. and Technometrica Inc., improved by 1.9 points in February, posting at 49.4 compared with 47.5 in January. The organizations note that the index is seven points above its 12-month average of 42.4 and five points above its reading of 44.4 in December 2007, when the economy technically entered into recession. Since 50 and above on the index means optimism, respondents are still a bit pessimistic, but not as much as in recent years, including late 2007, when the pessimism turned out to be more than justified.

The components of the index, which is based on a survey of 900-plus Americans, include Economic Outlook, Personal Outlook, and—interestingly—Federal Policies, or Confidence in Federal Economic Policies, a proprietary IBD/TIPP measure. The component tries to measure how optimistic people feel about the federal government’s handling of the economy, and even it was up in January by 4.5 points, to reach 40.5 (not very confident, but better than before).

There’s apparently enough optimism to go around, since the NFIB Research Foundation reported separately on Tuesday that its Optimism Index, which specifically gauges small business optimism, rose 1.8 points. It was the second monthly uptick in a row for the index.

While the index has gained 5.7 points over the last four months, the total reading is still in recession territory, the organization cautions. The index is still six points below the pre-recession average and more than 10 points below the same point in the recovery from the 2001 recession, the NFIB says. That might indicate weak growth ahead in 2012, or simply mean that the Great Recession was so much worse than the 2001 recession (which doesn’t even have a special name) that it’s taking a lot longer to climb out of it.

Greek talks drag on

The most recent round of talks between the Greek government and its creditors and its opposition is turning into a round of yo-yo for investors. One day, talks are stalled, and markets are nervous. The next day, the parties involved are “inching” or “edging” or just plain moving closer to a resolution that will allow Greece another fix of bailout euros, and buy European economies a little more stability; and investors are thus a little happier.

Tuesday was an up day in the mini-drama that’s the Greek bailout talks. The report was that the Greek leaders are on the verge of a deal to implement more austerity in various painful ways, so it’s no surprise that it’s a deal that’s been quite a while in coming.

Wall Street ended Tuesday up. The Dow Jones Industrial Average gained 33.07 points, or 0.26 percent, while the S&P 500 advanced 0.2 percent. The Nasdaq eked out a scant 0.07 percent gain.