Consumer Credit, a Double-Edged Sword

By Robert Hughes

Consumers continued to add debt to their balance sheets in January, according to data released by the Federal Reserve on Monday. Total consumer credit, credit cards and unsecured loans rose by an annualized 3.9 percent, or $129 billion for the month. However, the gain all came from unsecured loans, typically auto loans and education loans.  Credit card balances actually declined for the month, falling 2.1 percent at an annual rate.

Consumer credit can be a double-edged sword. In the short term, it can boost consumer spending, but if used recklessly, over indebtedness can cause severe harm to the individual and the economy as a whole. For the moment, consumer debt levels in aggregate appear manageable, but close monitoring will be critical to identifying potential risks to the economy in the future.

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Robert Hughes

Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.