Consumer Credit Spending Up in January

The economy looks to be improving, as consumer credit spending increased by a seasonally adjusted rate of 7.3 percent in December 2013 from November 2013 for a total of $18.8 billion, according to the Federal Reserve. This is the largest amount of spending by the U.S. in 10 months.

The increase in borrowing is due to holiday purchases and consumers getting financial backing for cars and student loans, according to Bloomberg. This is good news as economists originally predicted a rise of $12 billion. Jim O'Sullivan, chief U.S. economist at High Frequency Economics, told  Bloomberg he expects this type of spending to continue.

"To the extent that the labor market holds up and wealth holds up, then I think you'd expect to see credit continue to rise along with consumer spending," O'Sullivan said. "Consumer credit tends to be positively correlated with growth. It's generally a good sign when credit is rising."

Consumer confidence a key player
Bloomberg also said payroll increases would help give consumers more confidence in spending, which accounts for more than 70 percent of the economy. Consumer credit spending, whether it be for expensive student loans or even buying a sandwich from a restaurant, all contribute to positive gains for the economy. Several economic sectors had key roles in the increased amount of spending.

Student loans increased by $5.6 billion in December, which is a slight drop from November's revised total of $6.1 billion. During the fourth quarter of 2013, the amount of student loan debt jumped to a total of $12.6 billion.

Housing purchases have also played a factor in this jump in borrowing. During the fourth quarter of 2014, housing purchases were up by 3.3 percent, the largest quarterly gain since the fourth quarter of 2010. With all these factors, the economy increased by an annual rate of 3.2 percent during the last three months of 2013. Brian Moynihan, president and CEO of Bank of America Corp., said that this amount of consumer spending is good for the country.

"What we did see in the latter part of last year is more uses on the credit slide, which from a general economy perspective, is actually good news in that people were using the credits versus debit," Moynihan said.

Unemployment rate is down
Although job additions grew very little, January's hiring numbers were still higher than December. During January 2014, employers across the country added 113,000 jobs, which is an increase from December's gain of 75,000. These additions still helped the the unemployment rate drop to 6.6 percent, the lowest its been in five years.

Several areas of credit also saw increases during 2013. Revolving credit, which constitutes as consumer credit card purchases, increased by $5 billion during December, the largest gain in seven months. Non-revolving debt, such as student loan, increased by $13.8 billion for December.

Although consumer and credit spending is up in January, it is important to be aware of the dangers of spending beyond their financial means. Using a credit card can help you build up credit, but using it for every single expense can cause overspending, which will then raise your credit utilization rate and there by negatively affecting a credit score. To help rebuild credit if this happens, seek out credit repair services to help improve your score. Decreasing your balance and making credit card payments on time can help you get your bad credit get back on the right track.