Consumer Credit in U.S. Increases on Non-Revolving Debt

Consumer borrowing in the U.S. increased in November, reflecting a gain in non-revolving debt such as student and auto loans.

The $12.3 billion advance followed a revised $17.9 billion rise the previous month, the Federal Reserve said today in Washington. The median forecast in a Bloomberg survey of economists called for a $14.3 billion gain.

An improving job market and rising household wealth are giving Americans the confidence to borrow after years spent cleaning up their balance sheets. Further gains in consumer spending, which accounts for 70 percent of the economy, will be needed to drive demand for credit beyond loans for big-ticket purchases such as automobiles.

“Credit conditions are improving,” said Nariman Behravesh, chief economist at IHS Inc. in Lexington, Massachusetts, who accurately forecast the increase in consumer credit. “We are seeing consumers beginning to take on more debt, and that’s part of the recovery.”

Another report today showed companies added more workers than projected in December as employers grew more optimistic about the prospects for demand. Employment increased by 238,000, the most since November 2012, after a revised 229,000 gain in November, according to data from the ADP Research Institute in Roseland, New Jersey. The December tally exceeded the most optimistic forecast in a Bloomberg survey in which the median projection called for a 200,000 advance.

Fed Minutes

Also today, Fed officials saw diminishing economic benefits from the central bank’s bond-buying program and voiced concern about risks to financial stability, according to minutes of their last meeting.

Stocks dropped as the Fed minutes raised concern policy makers will step up the pace at which they trim stimulus. The Standard & Poor’s 500 Index declined 0.2 percent to 1,833.39 at 3:35 p.m. in New York.

Estimates (CICRTOT) of the change in consumer credit among the 32 economists surveyed by Bloomberg ranged from increases of $5 billion to $25 billion. The report doesn’t track debt secured by real estate, such as mortgages and home-equity lines of credit.

Revolving debt, which includes credit-card spending, increased by $457.8 million in November after a $4 billion gain the month before that was the biggest since May, today’s figures showed.

Non-revolving credit, such as that for college tuition and the purchase of vehicles and mobile homes, climbed by $11.9 billion after October’s $13.9 billion increase.

Federal Lending

Lending to consumers by the federal government, mainly for student loans, rose by $6 billion before adjusting for seasonal variations after increasing $5.2 billion in October, today’s report showed.

Accelerating growth in the world’s largest economy is boosting consumer spending, which climbed 0.5 percent in November, the most in five months, after a 0.4 percent gain in October. While some retailers have been discounting, an improved labor market and buoyancy in housing and stocks has lifted sales of cars, furniture, appliances and other durable goods.

Even as some consumers remain cautious about using debt to pay for purchases, credit card companies can still benefit through better credit quality, Richard Fairbank, chief executive officer of Capital One Financial Corp., said at the Goldman Sachs Financial Services Conference on Dec. 10.

Consumer Spending

“Ever so gradually, you’ve seen the consumer step out a little bit,” Fairbank said. “And certainly, we’ve seen spending pickup. And I don’t see any reason to think that that gradual trajectory wouldn’t continue” into 2014.

Many Americans have been less hesitant to borrow for auto purchases during the industry’s best year since 2007. U.S. auto sales industrywide increased 7.6 percent in 2013 to 15.6 million, even as sales in December fell short of analysts’ estimates after cold weather may have kept some buyers from dealers’ lots.

Growth in the U.S. is projected to reach 2.6 percent this year, supporting the Fed’s outlook that the economy has improved enough to begin unwinding its unprecedented stimulus program.

The central bank is trimming its monthly bond purchases to $75 billion from $85 billion, “reflecting cumulative progress and an improved outlook for the job market,” Chairman Ben S. Bernanke said at a press conference in Washington on Dec. 18 after a meeting of the Federal Open Market Committee.

To contact the reporter on this story: Victoria Stilwell in Washington at vstilwell1@bloomberg.net

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

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