Credit Cards.

 

The Federal Reserve released it’s report on the State on Consumer credit today. The report noted an increase in borrowing by consumers of $17.8 bn in January,  much less than the massive increases in borrowing of $20.4 and $19.3 billion in November and December respectively. Analysts had judged that the increase in consumer credit would be around $10 billion for January. This number far exceeds expectations.

The released figure is up for revision until three months after this report and can often be greatly revised. The initial release has in the past been likely to have overstated the credit situation. This result comes on the back of a large amount of positive information on consumer spending. These reports have created an optimistic mood about growth in the US economy that has been supported by preliminary jobs figures and consumer confidence reports.

The report divides credit into three distinct sections. These are auto, revolving and other. Automobile loans being the first segment followed by revolving which denotes credit card loans and other which usually includes student loans. The report exclude Real Estate loans such as mortgages and home equity borrowing. This report can be seen to comment on consumer confidence, a higher level of confidence leading to greater rates of borrowing among happier consumers willing to take on debt. However it has been demonstrated that this is only one of several reasons behind the accumulation of debt, another being the inability of wages to keep up with inflation.

This report will not likely have much impact on the market. The consumer credit report is often seen as a less than useful data set for investors. It comes on the back of several more prominent releases such as the consumer confidence report and the reports on sales by sector. Because of its lateness it is seen as a less than valid indicator of economic health, the amount of spending funded by borrowing is inconsequential to most investors. The market has usually already adjusted to the more important indicators and remains unmoved by this report. Another weakness of the consumer credit report is its frequent inaccuracies and its need for regular revision. This points to weakness in the data set making it almost completely unimportant to investors.