Borrowing Surge May Not Be Bullish

12/15/2011 6:30 am EST

Focus: MARKETS

Jim Jubak

Founder and Editor, JubakPicks.com

Though some applauded the October surge in consumer borrowing, MoneyShow’s Jim Jubak points out this may be a double-edged sword.

It’s getting to look a lot like Christmas. Well it is if you reach in your wallet and pull out your credit card.

In October, we had a big spike up in consumer borrowing. In fact, it was the largest month for consumer borrowing for about two years.

Now you can say, “Oh, this is really good because it means that people are feeling OK about themselves and about the economy, and they’re willing to go out and spend money they don’t have.” Or you can say, “Oh, well this is Christmas that we’re talking about. People spend themselves into debt over Christmas because it’s kind of an emotionally powerful time of year, and not giving things to your kids or to your spousal units or whatever feels really bad, so people spend themselves into debt.”

I sort of fall into the second camp. I think that Christmas is incredibly emotionally powerful. People do spend money they don’t have, and if you’re looking beyond Christmas at the trajectory of the US economy and looking at consumer spending, you’d have to say, well, after Christmas you’re going to see people retrench.

The growth in incomes just isn’t there. We’re seeing stagnant hourly wages. We’re seeing stagnant hours worked. We’re not seeing a big uptick in permanent jobs. I think we saw a pretty good bump in November, but most of that came in terms of temporary jobs…in other words, people being hired for the Christmas retail season.

So all of those things then lead me to believe that when we go into 2012, people are going to start to say “Oh, OK, well maybe I can’t pay down my debt, but at least I’m not going to go into debt further.” And unless they go into debt further, you’re not going to see an increase in consumer spending over what we’ve seen in this holiday season.

So, if you’re looking for growth in the economy in the news about consumer borrowing, well it means that I think we’ll have a pretty good Christmas. And if stocks get kind of excited about that, it would be nice to see some profits.

But then I’d suggest maybe be a grinch and sell, because 2012 won’t be a great year if what we’re doing is running it off of credit cards.

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