Americans are starting to get their household finances in order.
In an encouraging round of earnings reports, major banks say fewer mortgages are going bad, credit card defaults are down and more people are paying the bills on time.
One of the nation's largest consumer lenders, Wells Fargo, said Wednesday that 29 percent fewer loans went bad in the last three months of 2010 than the year before. And late payments on loans considered likely to default declined for the first time since 2008.
Late payments on credit cards issued by Bank of America, JPMorgan Chase and Citigroup also improved at a record pace at the end of last year, according to an analysis by Barclays Capital.
The reports are a sign that Americans are feeling more comfortable about their finances. Personal spending powers about 70 percent of the U.S. economy, and most economists say a fiscally fit consumer is critical to a strong economic recovery.
"There are signs of stability and growth," said JPMorgan CEO Jamie Dimon.
The bank news comes after a holiday shopping season in which spending was the strongest since 2006, and auto sales grew 11 percent last year, the first gains since 2005.
Taken together, the spending indicators are the "strongest showing for consumers since the peak years of the last expansion," and signal that the economy is "near a threshold of self-sustaining growth," analysts at Citi Investment Research & Analysis said in a report earlier this month.
Economists and policymakers are waiting for signs that the economic recovery can power itself rather than rely on outside supports, like the Fed's decision to buy hundreds of billions of dollars in government bonds to drive down interest rates.
The recent bank results are fueling that optimism.
Citigroup said loan losses fell 11 percent from the previous quarter as more of its customers kept up with payments.
It was the sixth straight quarter of declining losses, allowing the bank to release $2.3 billion from the reserves it sets aside for bad loans and helping it to report a profit. JPMorgan and Wells have also reported bigger profits because they could release loan reserves.
Fewer customers were late on their monthly mortgage payments. The portion of Citi's home loans that were 90 days overdue fell to 2.1 percent from 2.7 percent. And the bank set aside $4.8 billion for future losses, the lowest since the spring of 2007 and a sign it is more hopeful about the recovery.
Despite the encouraging trends, banks are still reluctant to loosen lending. Credit reporting agency Transunion estimates that 8 million Americans who had credit cards a year ago don't have them now, either by choice or because they were cut off. Banks slashed credit lines and closed millions of credit card accounts in response to regulations passed after the financial crisis.
Individuals, too, are hesitant to borrow even when they have access to credit. Federal Reserve data show that total revolving debt held by U.S. consumers — mainly credit cards — fell to just below $800 billion in November, the lowest since September 2004.
Each of the three biggest banks, which are also the three biggest credit card issues in the country, reported significant declines in card balances in the fourth quarter.
Banks have been especially reluctant to resume lending to risky customers. The banks gave out millions of subprime loans to people with spotty credit histories in the first half of the 2000s, the primary reason for the collapse of the housing market.
In the economic mess that followed, loan defaults increased sharply for all types of consumer loans — mortgages, home equity loans, and credit cards. Default rates spiked and lenders reported massive losses.
While Americans are spending more and the stock market is at its highest point in more than two years, there are still troubling signs that corporations don't feel confident enough yet to start hiring again with gusto.
On Wednesday, Goldman Sachs Group Inc., which does business mostly with companies rather than individuals, turned in weak fourth-quarter results. Goldman advises companies on raising cash for business expansion and mergers and acquisitions.
The investment bank's chief financial officer, David Viniar, said in a conference call that its corporate clients seemed increasingly uncertain as the year progressed. He also said that increasing uncertainty in the world economy made it difficult to predict how confident companies would be in the near future.
"Although there are positive signs in the U.S. economy," Citigroup CEO Vikram Pandit told analysts and reporters this week, "the housing market has yet to recover. Job creation has been weak."
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