Consumers Increase Spending but Cut Credit Card Debt in February

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Consumers Increase Spending but Cut Credit Card Debt in February

According to the Federal Reserve, February 2011 was the fifth month in a row that saw an increase in non-revolving U.S. consumer debt. Americans paid out more than expected on car loans, student loans, and personal loans, while continuing the trend of paying off their credit card debt.

Credit card debt is known as revolving debt, and despite the increase in spending, credit card debt is down 4.1% and credit and delinquencies are down, as well.

February saw the largest increase (3.8%) in consumer debt since June of 2008, bringing the total consumer debt to a whopping $2.42 trillion. In January Americans spent an extra $8.35 billion in non-revolving debt, followed by another $10.33 billion in February.

Economists and analysts have varied views of the growing trends.

On one hand, a Barclays economist believes the up-swing in spending shows that the American auto industry is beginning to turn around.  On the other hand, Ameriprise Financial believes the numbers show that people are going back to school and they believe the recovery will continue.

The decrease in credit card debt and delinquencies and increase in spending may hint to an increase in economic stability and Americans’ ability to pay their bills.

Another positive sign today, as the U.S. Census Bureau announced that the U.S. trade deficit decreased in the month of February, as well.

The Wall Street Journal, however, paints a far more conservative picture, claiming that the economy’s growth is not substantial enough to cut into the unemployment rate, and while income-tax cuts have stimulated spending, high gas prices are costing Americans that extra cash.

While consumer spending accounts for 70% of all U.S. economic activity, average households are increasing their debt in order to spend, thus fueling a necessary cycle of spending and debt really making the overall prognosis of these numbers uncertain.