Posted by WARREN MOSLER on February 8th, 2012
With the federal deficit coming down it takes more consumer and business borrowing to keep GDP (modestly) growing.
And note that student loans are reportedly responsible for half the gain.
Looks to me like it’s going to take a lot more consumer debt growth just to start lowering the output gap.
The largest gains are traditionally to be had in housing, but still no sign of that sector materially improving.
Nor is a proactive fiscal relaxation in the cards.
If anything there’s risk of taxes going up and more spending being cut.
Feb 25 (AP) — Americans accelerated their borrowing in December for the second straight month, running up more credit card debt and taking out loans to buy cars and attend school.
Consumer borrowing rose by $19.3 billion in December after a $20.4 billion gain in November, the Federal Reserve said Tuesday. The two increases were the biggest monthly gains in a decade.
Total consumer borrowing is now at a seasonally adjusted $2.5 trillion. That nearly matches the pre-recession borrowing level. And it is up 4.4 percent from the September 2010 post-recession low.
The rise in borrowing could be a sign that Americans are more confident in the economy. But consumers are also borrowing more at a time when their wages haven’t kept pace with inflation.
The outlook for hiring has improved, which could help boost consumer spending.
In January, companies added 243,000 net jobs, and the unemployment rate fell to 8.3 percent, the lowest in three years.
Still, without higher pay, many could pull back further on spending. Consumer spending was flat in December, and the savings rate fell. Consumer spending is important because it accounts for 70 percent of economic activity.
Americans borrowed more on their credit cards in December, likely to buy holiday gifts. A measure of that debt increased by $2.8 billion.
But the bulk of December’s increase was because consumers took out more auto loans and student loans. The category that includes both rose by $16.6 billion.
Ellen Zentner, an economist at Nomura Securities in New York, said that half the gain in that category came from higher student loans. That suggests the weak economy is persuading more people to go back to school.