Economic and financial experts say the economy is recovering. They agree it’s not a huge recovery, but it’s the best in the last four years, with more new jobs and less unemployment. Here’s what’s happened in December, 2011: the unemployment level dropped to 8.5% , the lowest level since 2006, and employers added 200,000 new jobs, the sixth straight month of improvement.
What impact did this upswing in the economy have on consumer borrowing?
According to the Federal Reserve, in November of 2011, consumer borrowing increased by $20.4 billion, to post the largest monthly gain in a decade. By consumer borrowing, we’re only talking about things like credit cards, auto and student loans, but not mortgages and other loans related to real estate. The increase was attributed to holiday sales and purchases of new vehicles, indicating a surge in borrower confidence in the economy.
How does this tie into the big picture?
Total consumer borrowing was $2.48 trillion, increased from $2.39 trillion in September 2010. That’s a $90 billion increase in 14 months, a 3.8% increase in consumer spending.
Is this good or not?
That’s a matter of interpretation. Optimists would say this starts a “virtuous cycle,” in which more jobs lead to greater consumer spending, which leads to more companies adding more workers, which drives more spending and hiring in an upward spiral of prosperity. A proponent of this viewpoint is Paul Edelstein, an economist with HIS Global Insight. “Consumer credit growth is a positive sign for the recovery in that it signals increasing demand and willingness to spend,” he said in a report to his clients. 
There is also a more sobering interpretation.
What if many people are using credit cards to make up for wages that haven’t kept up with inflation?
There are two indications that this may also be happening. First, inflation-adjusted after-tax incomes shrank by nearly 2% in November, and the savings rate fell to 3.5%, the lowest level since the recession started. That could indicate that the better unemployment figures are not enough, and that Americans are being caught in a vicious credit crunch between their income and their bills.
Jim Lacamp, senior vice president and portfolio manager with Macro-Portfolio Advisors, during the Fox News forum “The Cost of Freedom – Signs the U.S. Economy is Recovering,” explained his thoughts on the subject of unemployment. “We’ve got 64 percent participation in the labor force. That’s way too small and it’s the lowest number since 1984. We have 325,000 people that dropped out of the labor force. That’s not acceptable.” Mr. Lacamp feels strongly that a world-wide credit crunch is looming on the horizon.
While there is definitely a reason to celebrate with an economic recovery perhaps already started and consumer demand for credit expanding, a consideration toward putting more people to work and improving wages might fuel the economy even more!