Consumers borrowed an additional $18.9 billion in February, over January 2014, reflecting a decline in the level of money anxiety due to improving economy.

Consumers increased their personal debt by $18.9 billion in February for items such as cars, mobile homes, boats, trailers and education according to the latest Consumer Credit Report (G-19) released this week by the Federal Reserve.  The additional debt amount reflects only personal loans, and does not included mortgages or credit card debt.  The increase in personal-loan demand is likely to push loan and deposit rates up in the second half of this year.

As of February 2014, nonrevolving credit, which includes personal loans but no mortgages, stands at $2,275.3 billion.  Revolving outstanding credit, consisting of credit cards debt, stands at $864.2 billion, for a total outstanding credit of nearly $3.1 trillion. The total outstanding credit originated from banks, credit unions, financial companies and the federal government.

The increase in personal borrowing is a reflection of a decrease in the level of the Money Anxiety Index, which decreased 13.6 points since January of 2013, when it stood at 92.4, to 78.8 in February of 2014.  The decrease in the level of consumer financial anxiety shows that consumers are more optimistic about their finances, and are more likely to take on loans to finance purchases.

Consumers borrow more and spend more as their level of money anxiety subsides.  The Money Anxiety book demonstrates how consumers’ spending declined during the Great Recession, when the level of money anxiety was extremely high.  However, since January of 2013, the level of consumer financial anxiety subsided, and consumers increased their spending including purchases of durable goods that are often financed through loans and credit.

 


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