Believe it or not, sometimes a little debt can be a good thing. According to the Federal Reserve’s recently published G.19 report, revolving credit, which is primarily credit card debt, increased by 5.6% in October of 2013, and preliminary numbers indicate that it increased 7% in December. This means that the seasonally adjusted annual rate for the fourth quarter 2013 was 4.4%. Even if the December numbers are revised downward, the amount of consumer revolving credit outstanding will likely see a substantial increase in 2014 when compared to the prior four years. Economic indicators are showing that consumers are increasingly optimistic and willing to spend. This is good news for a large number of industries. In Mintel’s report Consumer Attitudes Toward Debt, US 2013, almost four in 10 respondents said they expect their household financial situation to improve in the next year. This compares to Mintel’s survey in 2007-2008 when only 16% agreed. The numbers have also increased since 2009-10, with a 7 percentage point improvement. A large portion of households are still focusing on paying off or paying down debt however. The survey for the same report showed that 63 – 65% of those earning $25K – $100K said that is a primary personal goal for their household, vs. 51% of households earning over $150K. It is the higher income households that are seeing the most improvement in their financial situations. According to Mintel’s report Consumers and the Economic Outlook, US 2014, higher income households are much more likely to have had an increase in the last year in the percentage who say that their household financial situation is healthy. Consumers Are Cautiously Optimistic Households are still cautiously optimistic, but they are certainly feeling healthier than they were even a year ago. One reason that this optimism is more evident in higher income households is because they were the most likely to benefit from the rising stock prices in their 401k’s and investment accounts in 2013. A more immediate impact however may be from increasing home prices, as this is the most important source of wealth for both middle-income and many higher income households. What It Means An increase in the willingness of consumers to spend on credit is not in-and-of-itself a good thing, but the fact that they are increasingly willing to take the risk of spending on credit is. Since consumer spending is 70% of GDP growth, increased consumer spending of any kind is good news for the economic recovery overall. One indicator to watch is retail sales. Credit card payments are approximately one third of retail point-of-sale payment volume, and that number (in conjunction with debit cards) has been increasing in recent years as cash has become a less popular payment method. Credit card issuers will benefit of course. However, as many issuers have been chasing the same target demographic (primarily higher income households) for the last several years, they now may be increasingly willing to extend credit to other households as well. You might also be interested in: No related posts.