Growth in Consumer Credit in 2013 After Years of Decline

The Federal Reserve Bank of New York recently reported household credit data for the fourth quarter and full year 2013. It showed modest annual growth in most categories with only student and auto loans gaining significant ground.

Outstanding consumer credit in 2013 grew by a total of $180 billion to $11.52 trillion. Overall household debt remains 9.1 percent below the peak of $12.68 trillion in Q3 2008.

It was the first year-over-year growth in total debt outstanding, as tracked by the Fed, since 2008. But it almost didn’t happen.

The fourth quarter of 2013 boasted the highest quarter-over-quarter growth since Q3 2007, the last quarter before the official beginning of the Great Recession. In the final quarter of last year, total consumer credit outstanding grew by $241 billion, driven by a surge in mortgage debt of $152 billion.

But it was an anomalous quarter for mortgages in a still-recovering housing market. For the full year, total mortgage debt outstanding grew by only $16 billion. Home equity lines of credit contracted by $34 billion in the year, creating a net negative growth rate for loans backed by real estate.

Credit cards also saw anemic growth last year, adding just $4 billion to total balances outstanding. Credit card debt in the U.S. stood at $683 billion at the end of 2013.

Two asset classes did, however, expand significantly last year. Student loan debt grew by $114 billion in 2013 to stand at $1.03 trillion, now the second-largest category of consumer debt behind first mortgages. Right behind it, auto loan balances outstanding added $80 billion.

Consumer delinquencies also decreased slightly in 2013, with only credit card balances showing an increase in 90+ day late payments, moving to 9.5 percent from 9.4 percent.

The impact this news will have on the ARM industry was best summed up in the New York Fed announcement: “This is the first time since before the Great Recession that household debt has increased over its year-ago levels suggesting that after a long period of deleveraging, households are borrowing again,” said Wilbert van der Klaauw, senior vice president and economist at the New York Fed.

If nothing more, it should be taken as an encouraging sign that consumers are borrowing again.

This article originally appeared in the latest issue of Know Your Debtor, a free quarterly newsletter focused on the U.S. consumer environment. Make sure you’re registered to receive insideARM’s newsletters on your User Profile page.