Consumer Credit Growth Slows in December and Delinquencies Rise

U.S. consumers continued to spend more on credit in December but at a much slower rate than in previous months, according to data released today by the Federal Reserve. And while consumer credit and credit card debt grew at the fastest pace in years in 2007, card issuers are reporting a significant spike in credit card delinquencies and chargeoffs, according to one research firm.

Overall consumer credit expansion slowed to a 2.1 percent annual rate, or $4.5 billion, in the final month of 2007 after swelling 8.2 percent in November. For the year, the Fed said consumer credit grew at 5.5 percent, the highest since debt grew at the same rate in 2004.

Consumers added $2.1 billion to credit card balances in December, an annualized growth rate of 2.7 percent. Total credit card debt in the U.S. now stands at $943.5 billion. For the year, credit card debt – called revolving debt by the Fed – grew 7.8 percent compared to a 6.1 percent increase in 2006, a 3.1 percent increase in 2005, and a 3.8 percent rise in 2004.

The Fed also revised its numbers from November sharply upward with credit card growth coming in at 13.7 percent compared to the 11.3 percent rate it initially reported ("Credit Card Spending Explodes in November," Jan. 9).

Consumers slowed credit card spending in December and they also had trouble making payments on time, according to a recent report from RiskMetrics Group.

The RiskMetrics report, “Credit Card Master Trust Performance Monitor,” showed that 7.59 percent of all credit card accounts were either 60 days or more delinquent or charged off – called adjusted credit quality measure – in December, rising from 7.55 percent in November and up significantly from the 6.41 percent reported in December 2006. The report covered individual banks rather than a cross-industry aggregate, although the banks covered are 14 of the largest credit card issuers, including American Express, Bank of America, Capital One, Citigroup, Discover and JP Morgan Chase.

Kevin Mixon, who wrote the RiskMetrics report, told insideARM that November’s 7.55 percent credit quality measure represented a huge spike from October after a slow trend of increases over 2007. “The banks were saying the trend in 2007 was normalization as delinquency and charge-off rates returned to pre-bankruptcy reform levels,” of 2005, he said. “But the November spike and December’s reaffirmation are something different.” Mixon said that delinquency rates are still relatively low by historical standards.

RiskMetrics does not specifically forecast future trends in the credit quality measure, but both the report and Mixon noted that credit card lenders are in for more challenging times in 2008.

The Fed also reported that non-revolving debt, like auto and student loans, increased $2.4 billion – a 1.8 percent annual rate – to stand at $1.58 trillion after a 4.9 percent increase in November. For the year, non-revolving consumer debt rose 4.2 percent compared to a 3.6 percent rise in 2006 and a 4.9 percent increase in 2005.

Total consumer debt in the U.S. now stands at $2.52 trillion, according to the Fed. Debt covered in this report from the Fed, commonly called the G.19 report by economists, does not include mortgages and other debt backed by real estate.