Consumer Borrowing Surges in Late 2011

Consumers were confident enough at the end of 2011 to push borrowing levels up by $20.4 billion in November, the Federal Reserve reported late Monday.

Outstanding consumer credit rose to $2.48 trillion during that month, the Fed said. That was the highest level since November 2001, and it was more than twice the predictions of economists surveyed before the report was released. 

The credit increase corresponded with healthier employment numbers; people are more likely to borrow if they believe they will have the wherewithal to pay the money back without serious penalty. So, it is likely that the December credit levels are higher than they have been for the past several years during the recession and slow recovery.

Is Increase Sustainable?

Still, the increase might not be sustainable, so small businesses shouldn't adjust their sales forecasts just yet. 

It is important to note that the November increase corresponded with the start of the holiday retail season, which means that much of the credit was inspired by seasonal purchases that some people feel obligated to make. They might not be willing to do the same on their own behalf. The revolving debt that includes credit card spending number rose by $5.6 billion, which was its biggest increase since March 2008. Nonrevolving debt including car loans, mobile home loans and loans for higher education grew by $14.8 billion.

"The apparent stronger consumption at year-end was associated with falling savings rates, compensating for stagnating income growth," Dennis Lockhart, president of the Federal Reserve Bank in Atlanta said in remarks on Monday. "I question whether this consumer spending momentum will be sustained without a pickup in income growth.

It also is important to note that the Fed's consumer credit number doesn't include the sort of credit that has been most under pressure over the past several years, mortgage debt. That number was down 1.3 percent for the third quarter of 2011, as households refinance or shed houses with falling values. So, Americans may have been willing to take on short-term debt for the holiday, but they will be leery of putting themselves into a financial hole so quickly, especially with savings rates so low.

Lockhart's comments refer to U.S. savings rates. Data suggests that Americans save about 3.5 percent of their income currently, which compares with 5 percent during the recession. 

That means less real spending money unless they borrow, which many Americans may only be willing to do in a pinch -- such as for a car or to help put a child through college.

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Heather Clancy is an award-winning business journalist with a passion for small businesses, green technology and corporate sustainability issues. Her articles have appeared in Entrepreneur, Fortune Small Business, The International Herald Tribune and The New York Times. Follow her on Twitter or on Google+.