Consumer Credit in U.S. Rose in October to Two-Year High

U.S. consumer borrowing rose in October to the highest level in two years, propelled by gains in non-revolving debt like auto and student loans.

Credit increased by $7.65 billion to $2.46 trillion, the most since October 2009, Federal Reserve figures showed today in Washington. The advance was in line with the median forecast of economists surveyed by Bloomberg News that projected a $7 billion gain.

The data indicate consumers are relying more on credit to sustain spending as income gains fail to keep up with inflation and home prices drop. At the same time, increasing employment may be making Americans more willing to take on more debt heading into the holiday shopping season.

“It’s hard to determine whether spending on credit is a sign of optimism or a sign of distress, but just anecdotally we feel there is the beginning of tentative feelings of comfort in taking on slightly more debt,” said Dana Saporta, a U.S. economist at Credit Suisse in New York.

Estimates in the Bloomberg survey of 34 economists ranged from gains of $1 billion to $16 billion.

Revolving debt, which includes credit cards, climbed by $366.2 million in October, according to the Fed’s statistics.

Non-revolving debt, including educational loans and loans for autos and mobile homes, increased by $7.28 billion in October, today’s report showed. The Fed’s report doesn’t track debt secured by real estate, such as home equity lines of credit.

Savings Rate

Households may need to borrow more to sustain spending that climbed in the third quarter at the fastest pace this year alongside a drop in disposable income. The savings rate fell to 3.8 percent, the lowest since the last three months of 2007, to support the 2.3 percent advance in purchases last quarter, Commerce Department figures show.

In November, U.S. auto sales rose to a 13.6 million seasonally adjusted annualized rate, the best month since August 2009, according to Autodata Corp. Americans spent a record $52.4 billion during the Thanksgiving weekend, kicking off the holiday shopping season, according to the National Retail Federation.

Lenders may be more willing to support those outlays after restricting credit during the recession. Banks were more likely to ease than tighten standards on consumer credit-card loans and other non-auto loans in the third quarter, according to a Nov. 7 Federal Reserve survey of loan officers. They were also more likely to report “strengthening demand for consumer credit card and auto loans, in line with the past few quarters,” it said.

Total Borrowing

Consumer borrowing, nonetheless, has shrunk relative to its size before the recession. Household debt in the U.S. is currently at about $13 trillion, compared with $14 trillion in 2008, Wells Fargo & Co. (WFC) Chief Executive Officer John Stumpf said yesterday during a conference hosted by Goldman Sachs Group.

“As I spend time with our consumer lending divisions and out in the public with customers, people are paying debt down,” the leader of the fourth-largest U.S. bank by assets said. While the “pool of consumer loans will shrink,” auto loans “will be a growth area” along with student loans, he said.

To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net

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

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