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Consumer Credit in U.S. Rose More Than Forecast in December

Consumer borrowing in the U.S. increased more than forecast in December as Americans made holiday purchases with credit cards and took out loans for cars and schooling.

The $18.8 billion gain exceeded the highest estimate in a Bloomberg survey and followed a revised $12.4 billion advance the previous month, the Federal Reserve said today in Washington. The median forecast of 30 economists called for a $12 billion increase. For all of 2013, consumer credit increased 6.2 percent after rising 6.1 percent a year earlier.

Gains in household wealth tied to higher stock and property values are giving Americans the wherewithal to carry bigger credit-card balances as the job market struggles to pick up. Stronger wage growth would help provide more fuel for the consumer purchases that account for almost 70 percent of the economy.

“To the extent that the labor market holds up and wealth holds up, then I think you’d expect to see credit continue to rise along with consumer spending,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York. “Consumer credit tends to be positively correlated with growth. It’s generally a good sign when credit is rising.”

Payrolls rose less than projected in January as retailers cut back after the holidays and government hiring fell, another report showed today. Employment grew by 113,000 in January after a 75,000 gain in December, the weakest back-to-back job gains in three years, according to the Labor Department. The unemployment rate dropped to 6.6 percent.

Economists’ Estimates

Estimates (CICRTOT) of the change in consumer credit among the 31 economists surveyed by Bloomberg ranged from increases of $5 billion to $17 billion. The report doesn’t measure debt secured by real estate, such as mortgages and home-equity lines of credit.

Revolving credit, which includes credit-card purchases, rose by $5 billion in December, the most in seven months, after a $465 million gain, today’s figures showed.

Non-revolving debt, such as that for college loans and the purchase of vehicles and mobile homes, climbed by $13.8 billion after November’s $11.9 billion increase. Auto lending increased $7 billion in the fourth quarter from the prior three months.

Americans have been borrowing to replace older cars. U.S. auto sales increased to 15.6 million in 2013, the industry’s best year since 2007, according to researcher Autodata Corp. The improvement came even as December sales slumped after cold weather kept some buyers from dealerships.

Student Loans

Lending to consumers by the federal government, mainly for student loans, rose by $5.6 billion before adjusting for seasonal variations after rising $6.1 billion in November, today’s report showed. In the fourth quarter, student-loan debt rose $12.6 billion. Household purchases grew 3.3 percent in the fourth quarter, the biggest gain since the end of 2010, a Commerce Department report last week showed. The world’s largest economy expanded at a 3.2 percent annual rate in the final three months of 2013.

Banks can benefit from the consumers’ increased use of their credit cards even after an expected drop in balances following the holidays, said Brian Moynihan, president and chief executive officer of Charlotte, North Carolina-based Bank of America Corp.

“What we did see in the latter part of last year is more uses on the credit slide, which from a general economy perspective, is actually good news in that people were using the credits versus debit,” Moynihan said on a Jan. 15 earnings call.

Citing gains in the labor market, the Federal Reserve last month said it will reduce monthly bond buying to $65 billion from $75 billion.

To contact the reporter on this story: Katherine Peralta in Washington at Kperalta2@bloomberg.net

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

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