Consumer Credit in U.S. Increases by Most in 10 Years

Consumer borrowing in the U.S. surged in March by the most in more than a decade on growing demand for educational financing and autos.

Credit rose by $21.4 billion, the biggest gain since November 2001, to $2.54 trillion, Federal Reserve figures showed today in Washington. The advance was paced by a $16.2 billion jump in non-revolving debt, including student and car loans.

Americans may have been trying to get school financing before a possible increase in interest rates takes place on July 1. Rising consumer confidence also means that households are more willing to take on debt to boost spending, which accounts for about 70 percent of the economy.

“There was a burst of borrowing in March as warm weather pulled forward spring shopping and auto sales were strong,” said Julia Coronado, chief economist for North America at BNP Paribas in New York. “Student loan growth continues to be very strong and a little worrisome. Smoothing through the monthly volatility consumers are becoming a little more comfortable with borrowing to buy cars.”

Stocks rose following the biggest weekly decline in 2012, led by bank shares. The Standard & Poor’s 500 Index climbed 0.2 percent to 1,371.1 at 3:30 p.m. in New York.

The increase in consumer credit topped the $9.8 billion median forecast of 33 economists surveyed by Bloomberg News. It also exceeded the highest estimate, with projections ranging from increases of $4.5 billion to $15 billion.

Government Lending

The surge in non-revolving debt followed a $11.6 billion gain in February, today’s report showed. The Fed’s data don’t track debt secured by real estate, such as home equity lines of credit. Lending by the federal government, which is mainly for student loans, climbed by $6.9 billion before adjusting for seasonal variations.

The rate on the student loans is set to double on July 1 without action by Congress. The rate increase would affect about 7.4 million students, according to the White House, adding an average of $1,000 a year in payments on college loans.

President Barack Obama last week sought to keep pressure on Congress to freeze the interest rate on federally subsidized student loans, saying a higher education can’t be an unaffordable luxury for middle-income Americans.

Some economists were concerned the jump in educational lending reflected a poor job market.

Jobs Outlook

“Most of the improvement in credit is a function of the explosion student loan debt,” said Neil Dutta, an economist at Bank of America Corp. in New York. “The reason student loan debt is exploding? Because the youth population is having difficulty finding work. Hardly a good reason for credit extension.”

Revolving debt, which includes credit cards, increased by $5.2 billion, the first gain in three months, according to the Fed’s statistics.

Consumer confidence climbed to a four-year high in early April, according to the Bloomberg Consumer Comfort Index.

Americans are buying more cars as hiring and the economy improve. Sales of cars and light trucks have exceeded a 14 million annual pace in each of the past four months, the best performance since 2008, according to figures from Ward’s Automotive Group.

General Motors Co. (GM), the world’s largest automaker, said first-quarter U.S. sales climbed 2.7 percent to an industry- leading 608,320, helped by the Chevrolet Cruze and Malibu sedans.

Chrysler Group LLC led the five largest automakers by U.S. sales in exceeding analysts’ estimates for April as the industry’s increased production drove expansion in the manufacturing sector.

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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