U.S. Consumer Credit Increases by Most in Ten Years on Household Optimism

Consumer borrowing (CICRTOT) in the U.S. surged in November by the most in 10 years, showing households are optimistic enough to take on debt and banks are willing to lend.

Credit increased by $20.4 billion, the biggest jump since November 2001, to $2.48 trillion, Federal Reserve figures showed today in Washington. The advance was almost twice as big as the highest forecast of 31 economists surveyed by Bloomberg News.

Increasing borrowing signals a drop in unemployment (USURTOT) is giving households the courage to take advantage of holiday discounts, buy cars and finance higher education. At the same time, dependence on credit means the job market has yet to improve enough to provide the incomes needed to sustain consumer purchases, which account for about 70 percent of the economy.

“Consumers are feeling more confident and making more big- ticket purchases,” said Richard DeKaser, deputy chief economist at Parthenon Group Inc. in Boston, who projected credit would climb by $11.6 billion, the highest estimate in the Bloomberg survey. “The debt pay downs of previous years are now allowing consumers to borrow a bit more freely.”

Stocks held earlier gains after the report. The Standard & Poor’s 500 Index rose 0.2 percent to 1,280.12 at 3:20 p.m. in New York.

Survey Results

The median forecast in the Bloomberg survey projected a $7 billion gain. Estimates ranged from a $6.4 billion drop to an increase of $11.6 billion. The level of borrowing was the highest since September 2009.

Revolving debt (CICRRRTL), which includes credit cards, climbed in November by $5.6 billion, the biggest advance since March 2008, according to the Fed’s statistics.

Non-revolving debt (CICRNRVL), including educational loans and loans for autos and mobile homes, increased by $14.8 billion, the most since February 2005, today’s report showed. The Fed’s report doesn’t track debt secured by real estate, such as home equity lines of credit.

Auto purchases (SAARTOTL) ran at a 13.59 million annual rate in November, the highest level since August 2009, according to industry statistics from Ward’s Information Products. Cars sold at a 13.5 million rate last month.

General Motors Co. (GM), Ford Motor Co., Chrysler Group LLC reported December vehicle sales that beat analysts’ estimates, capping the U.S. auto industry’s best year since 2008.

“We’re still in recession-like industry size,” Don Johnson, GM’s vice president of U.S. sales operations, said Jan.4 during a conference call with analysts. The growth is still based on a slow increase in jobs, he said.

Confidence among consumers rose to an eight-month high last month as an improving job market helped Americans regain all the ground lost following the budget battle and credit-rating downgrade, figures from the Conference Board.

The jobless rate unexpectedly fell to 8.5 percent in December, the lowest level since February 2009, and payrolls grew by 200,000 workers, figures from the Labor Department showed last week.

To contact the reporter on this story: Meera Louis in Washington at mlouis1@bloomberg.net

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

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