Consumer credit is showing signs of strength as Americans seek to shrug off the effects of the financial crisis, according to two sets of data released Monday.
The amount of consumer credit outstanding climbed in May, growing at a seasonally adjusted annual rate of 8.3%, to $2.8 trillion, data from the Federal Reserve Board showed. The report showed solid gains in revolving and non-revolving credit.
The trend in consumer credit outstanding has been positive for more than two years, but May's growth rate outpaced other recent readings. In March the growth rate was 3.6% and in April it was 4.6%, according to Fed data.
Meanwhile, delinquencies in 11 out of 13 consumer credit categories dropped in the first quarter of this year, according to data from the American Bankers Association.
"It's remarkable when you have such strong performance across almost all of the consumer categories," says James Chessen, chief economist at the ABA. "It makes me feel more positive about the rest of the year."
Delinquencies fell on personal loans, auto loans, property improvement loans, and home equity loans, among other categories. Loans are considered delinquent if they are 30 days or more overdue.
A composite index of delinquencies on closed-end loan categories hit its lowest level since December 2004, and delinquencies on bank-issued credit cards hit a 22-year low.
Chessen attributes the improvement in repayment rates largely to a healthier job market.
"Personal income is above what it was pre-recession. You have wealth recovered above its pre-recession peak," he adds. "All of that paints a picture of stronger consumer wealth and a better financial position."
The two categories where delinquencies rose during the first quarter were mobile home loans and home equity lines of credit. One likely factor in the latter increase is the fact that many home equity lines of credit are resetting from interest-only to fully amortizing repayment schedules, causing payment shock for some consumers.
"I think we're going to see some of that play out over the next year or 18 months," Chessen says. "We're by no means out of the woods."
Another reason for caution, according to Chessen, is that the consumer savings rate has started to fall after years in which Americans sought to rebuild their personal balance sheets. That raises questions about the sustainability of the growth in consumer spending.
But overall, there is growing evidence of a steadily improving economy, which "increasingly gives banks confidence about lending and getting their money back," Chessen says.