Economy Watch: Consumers Pull Out Plastic in June, Mortgage Delinquencies Flat, Can Kicked Down Road for Spanish Debt

Dees Stribling, Contributing Editor

The Federal Reserve reported on Monday that U.S. consumers borrowed more in June than they did in May. Borrowing in the form of credit cards, car loans, student loans and other kinds of debt was up by an annualized rate of 8 percent during the month, compared with a revised increase of 4.7 percent in April. It was the largest increase in non-mortgage consumer borrowing since December.

Revolving credit in particular took an unexpected jump, considering that consumers are supposed to be nervous about the general direction of the economy. Credit-card borrowing was up an annualized 11.2 percent in June, compared with a drop of 4.9 percent during the previous month. Non-revolving debt—mostly car and student loans, but also debt funding for the likes of boats and other durable items—was up an annualized 6.5 percent in June, compared with 9.6 percent in May.

Banks remained the largest group of creditors, holding on to about $1.17 trillion in consumer debt. Because of student loans, the federal government is now a large creditor, to the tune of about $464 billion. The Fed also noted that pools of securitized assets held an outstanding $53.5 billion in debt during June—about the same level as during all of 2011 ($55 billion) and somewhat less than in 2010 ($63 billion). Gone are the glory years for securitization such as 2007, when the total debt held by pools was $673 billion, or more than 10 times the current holdings.

Mortgage Delinquencies, Foreclosures Barely Move in May

According to LPS’ Mortgage Monitor for May, which was released on Monday, 7.2 percent of all U.S. residential mortgages were delinquent during May, an uptick from April’s rate of 7.12 percent. The May 2012 rate is down, however, compared with the same month last year, when 7.96 percent of mortgages were delinquent.

In addition, the company said that 4.12 percent of mortgages were in the foreclosure process, down ever so slightly from April’s total of 4.14 percent (this total is in addition to mortgage delinquencies). Year-over-year, the rate of mortgages in foreclosure has barely budged. Since April 2011, LPS reported the in-foreclosure rate as 4.11 percent. In any case, as of April 2012, 11.32 percent of all mortgages were either delinquent or in foreclosure.

There’s a wide difference in foreclosure rates between judicial and non-judicial states, noted LPS. Average foreclosure inventory in judicial states is 6.5 percent, or more than two-and-a-half times that of of non-judicial states, where the average is 2.46 percent. The number of loans delinquent more than two years is also much higher in judicial states, where they account for 53 percent of total foreclosure inventory, as opposed to just over 30 percent in non-judicial states.

Can Kicked Down Road for Spanish Deficit

The euro-zone has been quiet lately in the way that volcanoes sometimes calm down, and maybe it will stay that way for the rest of the summer at least, because the zone’s finance ministers said on Monday that they were giving beleaguered Spain another year to get its sizable budget deficit down to euro-zone specifications. The ministers also promised to make 30 billion euros worth of bailout cash available to Spanish banks by the end of this month.

Investors in Spanish debt weren’t necessarily impressed. Yields on 10-year debt once again rose above 7 percent on Monday, an unsustainable level by most reckonings.

Wall Street gyrated on the negative side of things on Monday, but ended down only a bit. The Dow Jones Industrial Average lost 36.18 points, or 0.28 percent, while the S&P 500 declined 0.16 percent and the Nasdaq was off 0.19 percent.