FORTUNE — There was a time not too long ago when consumers spent freely. They racked up debt on credit cards and took out second mortgages, thinking their expenses would eventually be paid off with the help of the equity they accumulated on their homes.
But it’s clear following the bust of the housing market that those days are gone, at least for the foreseeable future. Federal Reserve chairman Ben Bernanke underscored this point in a speech on Tuesday: “Developments in the labor market will be of particular importance in setting the course for household spending. As you know, the jobs situation remains far from normal.”
Indeed, recent trends in consumer credit highlight just how cash-strapped and wary of spending households still are, even though they’ve been saving a tad less and consumer credit has been trending up.
During the financial crisis, consumer debt fell to record lows as high unemployment and spiraling home prices constrained household budgets — when consumers stop spending, debt levels fall. Consumer credit began recovering in October, and many analysts have taken this as a sign that consumer buying is coming back, albeit slowly.
But that view is much too hopeful. Consumer credit has been rising, expanding $6.2 billion in April after gaining $4.8 billion in March. But the latest increases have largely been one-sided, driven almost completely by non-revolving credit – the majority coming from student loans and auto loans. Non-revolving credit has risen for nine consecutive months, up $7.2 billion in April. Meanwhile, revolving credit (i.e. credit cards) declined $0.9 billion during the same period.
“The longer high unemployment sticks around, the longer it will take for us to get back to normal spending,” says Jeffrey Greenberg, economist with Nomura Global Economics.
The upswing in non-revolving credit does not signal that consumers are recovering. Far from it. First, student loans suggest little about household consumption. And it’s not as if the recent rally in auto purchases genuinely suggest higher consumer demand. Many of the purchases reflect households replacing older vehicles after not having done so for a while, Greenberg notes. And while auto sales have been rising for the past several months, the latest figures show the industry could be cooling down amid tighter supplies following Japan’s natural disaster and higher prices. Automakers sold about 1.1 million vehicles in May, 3.7% less than a year earlier and 8.3% less than the previous month, according to Autodata Corp.
This looks far different from the type of borrowing that went on during the height of the housing boom, when it wasn’t uncommon for homeowners to extract cash from their homes to pay for everything from vacations to home upgrades and medical bills. Borrowers who took out second mortgages are more than twice as likely to fall under water on their home loans than owners who didn’t, according to a report released Tuesday by real-estate data firm CoreLogic. Nearly 40% of borrowers who took out second mortgages owe more on their home mortgage than their home is worth. By contrast, 18% of borrowers who didn’t take out such loans were underwater. What’s more, borrowers with second mortgages had deeper levels of negative equity – an average of $83,000 – than borrowers without second mortgages that averaged $52,000.
Clearly the lessons learned from the heyday of easy credit are showing themselves. Even if consumer spending grew a notable 6% during the first three months of this year, it really only increased by a mere 2.2% if we factor in inflation. And it’s likely that higher fuel prices and stubbornly high unemployment will continue to weigh on the consumer’s appetite for credit.