Tuesday, December 8, 2009

Credit Report

Consumer credit has been falling lately in lockstep with consumer confidence, as people with precarious employment situations have been reluctant to go into debt. So the fact that it shrunk by less than expected in October - and at less than half the rate on an annualized basis than it had fallen in each of the first three quarters - is good news indeed.

But that's not the whole story. The total drop in consumer credit was $3.51 billion in October, but revolving credit, which is primarily from the use of credit and charge cards, dropped by $6.95 billion. Nonrevolving credit, which includes fixed-term loans for items such as cars, boats and college education, rose $3.44 billion. (Mortgages and other loans linked to real estate aren't considered part of consumer credit.)

Both types of credit expand the nation's wealth in a sense, but the nonrevolving credit is a better measure of consumer confidence. People can charge items to a credit card on a whim, but buying a car is something that takes careful planning. And apparently, Americans are planning on having some reasonable income in the next few years.

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