According to the Federal Reserve Board, revolving consumer credit fell at an annual rate of 2.3 percent in January. Overall, revolving credit declined from $866.1 billion in December to $864.4 billion in the first month of the new year. Credit card debt accounts for most of revolving debt.
This drop may represent consumers' efforts to make payments on their credit cards. It may also indicate a higher number of charge-offs experienced that month. Recent data from Fitch Ratings showed that the amount of debt deemed uncollectible by lenders increased 11 percent during the January collection period.
Making payments on time is an important factor in maintaining a high credit score. This score is used by mortgage lenders and insurance agencies to determine interest rates or premiums. They can also be used as a basis for hiring. A credit score may indicate a consumer's level of financial responsibility, meaning that individuals with high scores are likely to present less risk.
Still, total consumer credit increased at an annual rate of 2.4 percent that month, its largest growth since July 2008. Nonrevolving credit, which rose by 5 percent or $6.6 billion, accounted for this growth. This figured includes debt from student loans, automobile loans or other secure purchases.
"Spending is holding up," David Wyss, chief economist at Standard & Poor's in New York, told BusinessWeek. "People are feeling a little bit more comfortable. They're sticking their heads out of the shell a little more."
A recent report by the Department of Commerce showed that consumer spending increased in January despite a drop in disposable income. Such spending accounts for 70 percent of economic activity and grew 0.5 percent that month, while the amount of income earned after taxes dropped by 0.4 percent.
Payrolls increased within the manufacturing sector and goods-and-services industries that month, according to the report.
January also saw a decrease in unemployment. Data from the Bureau of Labor Statistics shows that the unemployment rate reached 9.7 percent in January, its lowest level since October. The economy lost 20,000 jobs that month.
More recently, BLS data showed that the unemployment rate remained stable in February while national payroll decreased by 36,000 jobs. Industries hit hard by the recession, like manufacturing, remained relatively stable that month while construction, transportation and warehousing suffered losses.