Consumer Credit in U.S. Increases for Second Month

Consumer borrowing in the U.S. unexpectedly rose in October for a second straight month, led by an increase in non-revolving credit, including student loans held by the federal government.

Credit climbed by $3.38 billion after increasing a revised $1.23 billion in September, the Federal Reserve said today in Washington. Non-revolving loans rose for a third month as federal government education-related lending jumped an unadjusted $31.8 billion.

The report showed credit-card debt fell for a 26th consecutive time, showing Americans continue to pay down debt, one reason spending has been slow to recover. Car sales last month climbed to the highest level in a year and holiday purchases have perked up, indicating households may soon start borrowing again.

“Consumer finances are progressively improving, which is a good thing, but maybe not as much as these numbers indicate,” said Gregory Daco, a senior economist at IHS Global Insight in Lexington, Massachusetts. “We still have a lot of deleveraging going on, but the rate is slowing down. The conditions for consumers are slowly improving.”

Job openings rose in October for the first time in three months, signaling gains in payrolls will accelerate in early 2011, figures from the Labor Department also showed today. The number of positions waiting to be filled increased by 351,000 to 3.36 million, the most since August 2008. Excluding a drop among government agencies, the 369,000 increase in openings at companies was the biggest in four years.

Tax Cut Extension

Stocks ended the day little changed, depressed in the last hour of trading by reports that a probe of insider trading had widened and President Barack Obama’s comment that he’ll push to overhaul the tax code in two years. The Standard & Poor’s 500 Index rose 0.1 percent to 1,223.75 at the 4 p.m. close in New York. News that Obama had agreed to a two-year extension of current tax rates sent the index up as much as 1 percent earlier in the day.

Economists projected a $1 billion decline in credit, according to the median of 33 estimates in a Bloomberg News survey. Projections ranged from a decrease of $5 billion to a gain of $3 billion. The Fed revised the September reading to $1.23 billion from a previously estimated $2.1 billion increase.

Credit Breakdown

Revolving debt, which includes credit cards, dropped by $5.64 billion in October, according to the Fed. Non-revolving debt, which in addition to student borrowing also includes loans for cars and mobile homes, rose by $9.02 billion. The report doesn’t track debt secured by real estate, such as home-equity lines of credit.

In the auto industry, General Motors Co. and Ford Motor Co. reported sales gains that topped analysts’ estimates as consumers returned to showrooms.

Auto sales in October increased to a seasonally adjusted 12.25 million annual rate, the best reading since the government’s cash-for-clunkers program in August 2009, according to industry statistics. Ford, the second-largest automaker, reported a 15 percent increase in car and truck sales, and GM’s deliveries climbed 3.5 percent.

Car Sales

Demand kept improving in November. Light vehicles last month sold at a 12.26 million pace, the best performance without a government incentive program since September 2008.

Households cut debt in the third quarter, borrowing less against homes and closing credit card accounts, according to a Fed Bank of New York survey. Households slashed about $1 trillion from outstanding consumer debts since the peak in the third quarter of 2008, the bank said.

In the credit card industry, write-offs as measured by Moody’s Investors Service fell to 8.79 percent in October, the lowest since January 2009, while JPMorgan Chase & Co. the nation’s No. 1 issuer, reported its biggest quarterly profit from cards in three years.

Some Americans are spending more. MasterCard Inc., the world’s second-biggest payments network behind Visa Inc., reported said sales were picking up.

“Credit volumes were up in the low single-digits” in the U.S., Chris McWilton, president of U.S. markets for MasterCard Worldwide, said at a Dec. 1 conference in New York. “I think you do see improved consumer confidence.” Retail sales figures for the days following the Thanksgiving holiday showed “people were spending.”

More Spending

Visa said last week that U.S. credit-card spending climbed 9 percent in the first four weeks of November. Quarterly U.S. credit spending at San Francisco-based Visa hasn’t grown at that pace since 2007. Purchase, New York-based MasterCard, said spending by cardholders traveling abroad surged an annualized 19 percent from Oct. 1 through Nov. 28.

Target Corp., the second-largest U.S. discount retailer, posted a 23 percent increase in third-quarter profit after earnings at its credit-card unit more than doubled.

“We’re very pleased with our financial performance and our momentum as we begin the fourth quarter,” Chief Executive Officer Gregg Steinhafel said in a conference call on Nov. 17.

To contact the reporter on this story: Vincent Del Giudice in Washington vdelgiudice@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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