Consumer credit contracts in fourth quarter on housing, spending trends

U.S. consumers reduced their debt in the fourth quarter of last year, reflecting a growing sense of frugality in response to slow wage growth, high unemployment and rising commodity prices, according to data released Monday by the New York Federal Reserve. Total consumer credit fell 1.1 percent from the previous quarter, driven largely by a decline in mortgage balances and signs of greater willingness to spend. The overall debt volume shrank by  $126 billion to reach $11.53 trillion by the end of the period. Credit inquiries increased 2.7 percent during the October-December period - more than 16 percent above the low hit in early 2010. The 1.6 percent decrease in mortgage balances has suggested to economists that the much ailed housing sector is beginning to rebound. While the market has a ways to go to heal the high foreclosure rates and over-supply that have plagued the industry since the recession, it appears to finally be making a recovery. However, lenders are urged to adopt stringent consumer credit risk management policies to hedge against risky loans or outstanding debt. "While we continue to see improvements in the delinquent balances and delinquency transition rates this quarter, there has been a noticeable decrease in the rate of improvement compared to 2009-2010," Andrew Haughwout, vice president and economist at the New York Fed, told Bloomberg. "Overall it appears that delinquency rates are stabilizing at levels that remain significantly higher than pre-crisis levels.” Meanwhile, the Fed reported that mortgage originations climbed for the first time in three quarters, reaching $404 billion and pointing to a surge in supply and demand among creditors and borrowers.  For the year, originations were 3.1 percent below 2010 levels and the lowest since 2000. "You've seen a general trend where other types of consumer loans have been increasing, and if the bank lending gets a little easier, as the job market improves, it's all a part of the general economic recovery," Scott Brown, chief economist at Raymond James, told Reuters. The Fed report came only a few hours after a survey of economists by the National Association for Business Economics projected a 2.4 percent rise in U.S. gross domestic product in 2012.