U.S. consumers are spending more on their credit cards after two years of cutting back, according to the Federal Reserve's G.19 report released Monday. The first increase in credit card debt since the financial crisis began is a sign Americans are gaining confidence in the economy.

Overall revolving credit, 98% of which includes credit cards, jumped 3% in December to $800.5 billion from $798.2 billion a month earlier, reversing a 25-month trend of steady declines throughout the recession. Credit card borrowing peaked at $976.8 billion in October 2008. 

Elsewhere, borrowing on auto loans increased 2.8%. Both auto sales and overall retail sales showed increases in December. Retailers closed out their best holiday shopping season in four years. A month earlier, the strength came in the category that includes auto loans and student loans.

Analysts had expected a rise in total borrowing in December, reflecting strength in auto loans, but they did not expect a rise in credit card debt. Many are still preaching caution.

The data indicate credit cardholders are beginning to dig out of the recession, but the increase in card borrowing most likely is a seasonal blip, Scott Strumello, an associate with Auriemma Consulting Group, tells PaymentsSource, a Collections & Credit Risk sister publication.

“Historically, we have seen a bump in overall credit card borrowing over the holidays. And while the last two years were unusual in terms of consistent declines, the latest data are most likely a sign that we are heading back to more normal trends,” Strumello says.

It likely will be “two or three years” before the card industry sees overall loan-growth rates at prerecession levels, Robert Hammer, chairman and chief executive of credit card consulting firm R.K. Hammer, tells PaymentsSource. “This (December increase) was, simply put, a customer fourth-quarter rise in purchases,” he says.

The card industry will not see a significant rise in card loans until 2013 or 2014, when the jobs and housing markets return to healthy growth levels, Hammer predicts. Certain issuers may experience stronger loan growth than others during the next several months, but card-industry borrowing as a whole will not “jump” this year, he says.


That overall perspective was not absolute, however. At least one analyst predicted further credit gains in coming months.

Mark Zandi, chief economist at Moody's Analytics, viewed the December gains as an encouraging sign that households are becoming more confident about the U.S. economy and jobs. He also said banks are loosening some lending restrictions put in place after the financial crisis.

Households began borrowing less and saving more as they started to feel the impact of the recession, which officially began in December 2007. When unemployment climbed, consumers pulled back on spending and that further slowed economic growth. Consumer spending accounts for 70% of total economic activity.

But even if borrowing rises this year, many economists do not expect consumers will borrow at the pace seen in the middle of the last decade when soaring home prices made households feel wealthier than they were, and thus were encouraged to borrow and spend more.

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