U.S. consumers, whose use of revolving debt fell by more than 15% once the Great Recession hit, are finally re-embracing the credit card.
The thaw appears to be in its early stages, but the trend line is now clear: borrowing with plastic is picking up steam.
"Going forward, we are expecting faster balance growth," says Mustafa Akcay, assistant director of consumer credit economics at Moody's Analytics.
"U.S. consumers are becoming more comfortable in holding credit," adds Scott Anderson, the chief economist at Bank of the West.
April data from the Federal Reserve Board showed that revolving consumer credit jumped at a 12.3% annual rate, after accounting for seasonal differences. But even if that report overstated the magnitude of the rebound, as some observers suspect, other estimates also show that plastic-fueled debt is growing at rates unseen in several years.
Household credit on bank credit cards grew by 2.1% in May, which was the highest growth rate since the height of the financial crisis, according to a new report by Moody's Analytics. And analysts at Nomura recently declared that U.S. consumers' propensity to carry credit card debt from month to month is at its highest level since October 2008.
"We now believe we're at the early stages of a postcrisis inflection point in the level of spending that consumers are willing to finance on credit cards," the Nomura report stated.
"Although we're certainly not expecting consumers to go out and significantly re-lever their balance sheets, we do believe that consumer deleveraging is finally in the rearview mirror."
The rebound is being driven in part by a loosening of credit standards at card issuers, which clamped down on risky borrowers during the recession.
In the fourth quarter of 2013, 22% of loan originations went to borrowers with credit scores of below 660, according to data from Moody's Analytics. That figure was up considerably from the postcrisis low of 12% in early 2010.
"Priced properly, a lot of money can be made on subprime," says Robert Hammer, a credit card industry consultant. "But you've really got to be careful."
Industry observers also point to improving consumer confidence as a key factor in the card market's renewed loan growth. During the earlier stages of the economic recovery, many Americans bought cars, which they needed to travel to work, while delaying purchases of furniture, electronics and vacations.
"The big-ticket items are aging, and these are the items most likely to be financed by credit cards," Akcay says. "The pent-up demand is very high."
Some analysts maintain that the turnaround in revolving credit is still weaker than it ought to be. "It's not happening quickly. It's happening slowly," says Moshe Orenbuch, a card industry analyst at Credit Suisse.
Orenbuch believes that some consumers who got rejected for credit cards when standards tightened have since sworn off plastic. Young adults are also rejecting credit cards, he wrote in a report last year, arguing that the generational shift is likely to be enduring.
"The proportion of all consumers with no credit cards has increased overall since 2005," the report stated, "but the shift has been most dramatic among the 18-29 age group."
For many others, the credit card has gradually morphed into a tool for earning rewards points. The American Bankers Association said in a new report this week that the share of cardholders who pay off their balances in full each month ticked up to 29% in the fourth quarter, its highest level on record.
"More and more consumers are using their credit cards as a transactional tool," Kenneth Clayton, the executive director of the ABA's card policy council, said in a news release. "Rewards programs are a prerequisite for many consumers, and these changing preferences have propelled rewards cards to new heights."
Still, the propensity of U.S. consumers to revolve debt is on the rise again. Nomura calculates that propensity by comparing the year-over-year change in card balances to the year-over-year change in personal consumption expenditures. By that measure, consumers' propensity to revolve is at its highest level in 67 months.
Industrywide, stronger loan growth should lead to more revenue both for card issuers whose portfolios have been shrinking, such as Capital One Financial (COF) and Bank of America (BAC), and for those that have been experiencing higher growth than their competitors, such as Discover Financial Services (DFS).
Capital One Chief Financial Officer Stephen Crawford said this month there's a chance that loan growth at Capital One will resume earlier than the company had anticipated. Investors will get a better understanding of the industrywide trends in loan growth when credit card issuers report their second-quarter earnings in July.
Some observers have expressed concern that once-burned consumers are again starting to scratch their credit-card itch. Eventually, lower credit standards are likely to result in a rise in the number of consumers who can't meet their obligations. But there will be a time lag before that happens. For now, chargeoff rates and delinquencies remain near historic low levels.
Other analysts say there's no cause for alarm. Nomura points out that the percentage of growth in personal consumption that's being financed with credit card debt is still much lower than it was during the go-go days of the mid-2000s.
The firm's recent report calls the current level of consumer borrowing "healthy and responsible."
U.S. consumers currently have more capacity to borrow than they have since the recovery started, argues Bank of the West's Anderson.
"I see it as more of a positive story," he says. "There's this ability for households to spend and borrow. What we've been waiting for is the willingness of households to do so."