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Twenty-seven percent of all Americans said they increased their overall debt in the past six months, according to the Gallup Personal Credit survey for July. The number marks an increase from 22% in June. At the same time, 29% decreased their debt, with 35% in June.
Given the credit environment, increased consumer credit use may be seen as at least a mild positive for future economic growth, according to the survey.
While more consumers increased their debt in July, only 17% agreed with the statement that now is a "good time" to borrow money. Conversely, 43% think it is a "bad time" to borrow - slightly improved from the 46% to 47% who said so in the previous four months.
An increase in credit use may reflect the surge in the equities market since March, and the resulting positive "wealth effect" that makes many consumers feel better about their personal balance sheets and their use of credit. Along with this positive impact on consumer psychology, it is also possible that consumer credit underwriting standards have eased somewhat, with the nation's financial institutions showing better earnings, according to Gallup.
But Gallup's survey results also could be interpreted to suggest that this time around, the impact on consumer credit use and consumer buying behavior may be only a temporary phenomenon. While slightly fewer Americans see this as a bad time to borrow, there has been no improvement in the number of consumers seeing this as a good time to do so. Nor has the percentage of Americans intending to decrease their debt going forward changed.
It is also worth noting that the "cash for clunkers" program was implemented on July 24 and that Chrysler announced matching incentives on July 22. It is possible that the initial enthusiasm for this program may have positively affected consumers' self-reported credit use in Gallup's Personal Credit survey that was conducted on July 27 - particularly because the law authorizing the program took effect on July 1.
The government tax incentives combined with major dealer incentives succeeded in getting consumers back into the auto showrooms in July and are likely to continue to do so now that the program has been extended.
