Consumer Credit Expands in October, But Credit Cards Fall Again

Total outstanding consumer credit in the U.S. in October grew at the fastest pace in more than two years, but credit card debt continued its downward spiral notching its 26th consecutive monthly decline.

According to data released late Tuesday by the Federal Reserve, consumer credit increased at an annualized rate of 1.7 percent, or $3.3 billion. In September, consumer credit also grew, but at a more modest annual rate of 0.6 percent.

Nearly all of the gains were attributed to student and auto loans. The gain in auto loans were taken by economists as a sign demand is growing in the troubled sector. But the student loan gains were largely seasonal in nature.

The increased auto and student lending pushed the Fed’s non-revolving credit measure up $9 billion in October, an annual rate of 6.8 percent. This followed a 7.6 percent annualized increase in September, a month also driven by seasonal student loan activity.

But the increase in non-revolving credit was largely wiped out by sharp decreases in revolving debt, principally comprised of credit card debt.

Credit Card Balances Continue Disappearing Act

Outstanding credit card balances fell in October fell for the 26th straight month at an annual rate of 8.4 percent, or $5.6 billion. October’s figures follow a revised 13 percent annualized decline in September.

Since peaking at $973.6 billion in August 2008, consumer credit card balances have fallen to $800.5 billion, levels not seen since late 2004 and early 2005.

Much of the decline is due to lender charge-offs, as banks have worked to clear up their balance sheets in the wake of the financial meltdown. The banks have also instituted more strict lending criteria, in part due to the CARD Act of 2009, leading to slashed account limits and hampering new borrowing. Consumers have also contributed by paying down balances and charging less on bank-issued credit cards.

The credit card numbers are highly volatile, due to the nature of charge-offs, and can be subject to huge revisions. For example, the Fed announced last month that credit card debt fell at a 12.1 percent annual rate in September, revising that number to 13 percent Tuesday. Furthermore, the Fed previously reported that total outstanding revolving debt stood at $813.9 billion at the end of September and revised that number to $806 billion in its most recent release.

The Fed’s monthly consumer credit statistical release – also called the G.19 report – is comprised of data released to the central bank from member institutions, and does not include debt backed by real property, such as mortgages or home equity lines of credit.

Total consumer credit outstanding in the U.S. stood at $2.399 trillion at the end of September, down from a peak of $2.582 trillion in July 2008.