Freedom Debt Relief Quarterly Comment: New Federal Reserve, BEA Reports Show Upward Trends

Recent holiday retail results indicated that consumers are opening their wallets again – a trend supported by new data that shows more Americans are working, income is up and consumer debt is the lowest in five years, according to the Freedom Debt Relief Quarterly Comment on consumer debt and credit issues.

"From an economic perspective, it is encouraging to see consumers spend more at the holidays than in the past two years," said FDR vice president Kevin Gallegos. "However, even though unemployment is down and personal income is up slightly, that level of spending is a concern for people who might have simply added holiday spending to a worrisome debt load."

FDR co-founder and CEO Andrew Housser noted that consumers spent 5 percent more during the 2010 holidays than during 2009 – but that the unemployment rate is less than half a percentage point lower, and personal income only increased by a similar amount. "These small improvements might not be enough to support sharply higher spending levels," he explained. "Consumers need to be careful to sustain any good habits they developed during the past few years and not charge headlong into debt."

A summary of statistics from recent financial reports includes:

1. Total consumer debt continues to decline. Newly released Federal Reserve Board statistics show the total U.S. consumer revolving and non-revolving debt burden in November was just under $2.4 trillion, its lowest rate since February 2007. Consumers' total debt burden is 7.2 percent lower than one year ago. Additionally, the household debt service ratio (estimated ratio of debt payments to disposable income) reached 11.89 in Q3 2010, down more than two points from its high of 13.96 in Q3 2007.

2. Revolving debt is at its lowest level since 2005. Consumer revolving debt – which includes credit cards – was $796.5 billion in November. This continues the trend that began in August 2008, with revolving debt falling every month for 25 straight months. During that period, it has declined by more than 18 percent.

3. Non-revolving credit is rising. Throughout the past few years, consumer non-revolving debt – which includes auto and RV loans, education loans, etc. – has risen and fallen, but in late 2010 the trend appeared to be upward. In November, non-revolving debt increased at an annual rate of 4.2 percent.

4. Personal income increases. The Bureau of Economic Analysis (BEA) reports that personal income rose 0.3 percent in November, increasing by $42.3 billion. Disposable personal income (DPI) increased by the same percentage.

Personal consumption expenditures (PCE) increased 0.4 percent in November and 0.7 percent in October, marking five months of positive PCE after flat PCE in June. "People are beginning to spend again, even while they pay off debt," Housser observed. "While this trend could indicate a tentative recovery for the economy, we urge consumers to stay on course paying down their debt."

5. Employment numbers slightly improved. During December, the U.S. unemployment rate fell by 0.4 percentage points to 9.4 percent – after edging higher to 9.8 percent in November. That means that 556,000 more people found work, bringing the number of unemployed Americans to 14.5 million. "It is a bright spot to see more Americans going back to work," said Gallegos. "Regaining employment is the first step for people who need to get control of their debt problems."

The FDR Quarterly Comment pulls together significant statistical releases and provides quarterly comment on timely debt and credit issues that matter to consumers. To schedule an interview with Kevin Gallegos or Andrew Housser, contact Aimee Bennett at 303-843-9840 or aimee@faganbusinesscommunications.com.