Consumer Credit in U.S. Rose in October by Most in Five Months

By Michelle Jamrisko

Consumer borrowing rose in October by the most in five months as credit-card use picked up and Americans took out more loans for car purchases and education.
The $18.2 billion increase in credit followed a revised $16.3 billion gain in September that was more than initially reported, the Federal Reserve said today in Washington. The median forecast in a Bloomberg survey of economists called for a $14.5 billion advance.
Credit-card borrowing rose by the most since May as job gains, income growth and rising household wealth gave Americans the confidence to borrow. Consumers also took out more non-revolving loans for big-ticket purchases such as cars, which are on pace for their best sales year since 2007.
“Non-revolving credit has been the driving force behind consumer credit growth basically since the recession,” said Dana Saporta, director of U.S. economics research at Credit Suisse in New York. “As incomes start to pick up and those that have jobs have more confidence that they’ll see some income growth, we could see this revolving component post more consistent gains.”
Estimates of the 34 economists surveyed ranged from increases of $10 billion to $17 billion after a previously reported $13.7 billion advance in September. The report doesn’t track debt secured by real estate, such as mortgages and home-equity lines of credit.
Faster job growth may make Americans feel confident about taking on more debt. Employers added 203,000 workers in November after 200,000 a month earlier, a report today from the Labor Department showed. The unemployment rate dropped to a five-year low of 7 percent.

Credit Cards

Revolving debt, which includes credit-card spending, increased by $4.3 billion in October after declining $218 million in the previous month, today’s figures showed.
Non-revolving credit rose $13.9 billion in October after rising $16.5 billion a month earlier.
That type of lending has reflected the strength in auto sales. Cars and light trucks sold in November at a 16.3 million annualized rate, the strongest since 2007, according to Ward’s Automotive Group data.
General Motors Co. and Chrysler Group LLC led November U.S. sales gains that met or exceeded analysts’ estimates as dealers stepped up promotion of year-end offers to try to restrain rising vehicle inventory.

Auto Sales

Deliveries of cars and light trucks rose 14 percent for GM, 16 percent for Chrysler and 7.1 percent for Ford Motor Co., according to company statements. The automakers beat or matched analysts’ average estimates for increases of 14 percent for GM, 11 percent for Chrysler and 5.6 percent for Ford in a Bloomberg survey. Toyota Motor Corp. and Nissan Motor Co. also topped estimates with gains of at least 10 percent.
The rise has supported companies such as Fort Lauderdale, Florida-based AutoNation Inc., the largest U.S. retailer of cars and trucks.
“The auto-credit environment remains strong,” Chief Executive Officer Michael J. Jackson said on an Oct. 24 earnings call. Further sales gains are “dependent upon the fundamental strength of the economic recovery in the U.S. and whether the employment picture has significantly improved from what it is today.”
Consumer loans made by the federal government, mostly for school tuitions, increased by $5.2 billion before seasonal adjustment after rising $12.8 billion in September, today’s report showed.
The interest rate on undergraduate Stafford loans dropped to 3.86 percent in August, retroactive to July 1, the day the rate doubled to 6.8 percent. The law links financing to 10-year Treasury yields, which had the immediate effect of reducing the borrowing cost for Stafford loans.
Rising home and stock values have been cushioning consumers, supporting the household purchases that account for about 70 percent of the economy.