U.S. Consumer Credit Jumped in June by Most in Four Years

U.S. consumer borrowing jumped in June by the most in four years, led by a gain in non-revolving debt, including student loans.

Credit increased by $15.5 billion, three times as much as projected and the biggest gain since August 2007, after a $5.08 billion advance in May that was little changed from the previous estimate, the Federal Reserve said today in Washington. Economists forecast a $5 billion rise, according to the median estimate in a Bloomberg News survey.

Unemployment hovering around 9 percent may be spurring Americans to stay in school longer or seek more training in the hope of landing a job. At the same time, elevated gasoline and food costs may be straining household budgets, prompting consumers to turn to their credit cards to purchase necessities.

“While consumer credit has grown, it has does so more slowly than disposable income,” Steven Wood, president of Insight Economics LLC in Danville, California, said in an e-mail to clients. “Households are still deleveraging but not nearly as aggressively as they were last year.”

American employers added 117,000 workers to their payrolls in July after a 46,000 gain a month earlier, the Labor Department reported today. The unemployment rate dropped to 9.1 percent as almost 200,000 people left the labor force.

Non-revolving debt, including educational loans and loans for autos and mobile homes, rose by $10.3 billion for the month, the most since February. The Fed’s report doesn’t track debt secured by real estate, such as home equity lines of credit and home mortgages.

Using Plastic

Revolving debt, which includes credit cards, increased by $5.21 billion in June, the most since March 2008, according to the central bank.

In June, auto purchases ran at the slowest pace in a year as General Motors Co. and Ford Motor Co. missed sales estimates, while Toyota Motor Corp. and Honda Motor Co. report lower deliveries following the earthquake in Japan.

Vehicle sales ran at an 11.41 million annual pace in June, down from 11.76 million a month earlier, according to industry figures. Demand improved last month, rising to 12.2 million rate.

The Fed’s flow of funds report, issued June 9 showed consumers reduced debt for the 12th consecutive quarter in the three months ended in March. Household net worth advanced, led by investment gains that have since evaporated.

Limited job and income gains are making consumers less optimistic. The Bloomberg Consumer Comfort Index was minus 47.6 in the period to July 31, the lowest since May, compared with minus 46.8 the prior week.

Dour Mood

“When you look at unemployment being above 9 percent, housing prices not really coming back to a good space, that will impact the mood and the consumer confidence,” MasterCard Inc. (MA) Chief Financial Officer Martina Hund-Mejean said Aug. 3 in a telephone interview after earnings were announced. “It’s impacting it today and it will impact tomorrow.”

MasterCard is among credit-card companies that reported improved earnings, helped by a boost in global spending.

The world’s second-biggest payments network said reported that its second-quarter profit rose 33 percent. Its U.S. debit- card spending surged 19 percent in the second quarter to $98 billion from a year earlier, and U.S. credit-card rose climbed 6.1 percent to $129 billion, the company said Aug. 3.

American Express Co. (AXP), the biggest credit-card issuer by purchases, reported a $1.3 billion profit on July 21.

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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