Consumer credit in the U.S. rose in April for the eighth consecutive month, boosted by financing for education and automobiles.
The $6.51 billion increase followed a $12.4 billion gain in the previous month, the Federal Reserve said today in Washington. Non-revolving credit, which includes student loans and automobile lending, climbed by the most in three months.
Consumer credit is likely to continue growing as households rely on borrowing to buy large-ticket items like cars and to maintain their spending, which accounts for about 70 percent of the economy. Demand for student loans may have also picked up ahead of the looming rise in interest rates on such financing.
“People are taking advantage of cheap borrowing costs,” Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, said before the report. “It shows some confidence in the economy, but more than that, it’s just about higher demand.”
The median forecast of 36 economists surveyed by Bloomberg News called for an $11 billion increase in consumer credit. Estimates ranged from gains of $5 billion to $18.9 billion.
Non-revolving debt, including educational loans and loans for motor vehicles and mobile homes, rose by $10 billion in April, today’s report showed.
Lending by the federal government, which is mainly for student loans, climbed by $6.1 billion before adjusting for seasonal variations.
Revolving debt, which includes credit cards, dropped by $3.44 billion. The report doesn’t track debt secured by real estate, such as home equity lines of credit and home mortgages.
Credit is improving and the economy maintained a moderate pace of growth from early April to late May, the Fed said this week in its survey based on reports from its 12 district banks.
“Overall economic activity expanded at a moderate pace” the central bank said in its Beige Book report on June 6. “Lenders in most Districts noted an improvement in loan demand and credit conditions.”
The interest rate on the student loans is set to double on July 1 unless Congress takes action. 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 is trying to keep pressure on lawmakers to freeze the rate on federally subsidized student loans, saying a higher education can’t be an unaffordable luxury for middle-income Americans.
The job market is cooling. Payrolls grew by 69,000 workers in May, less than half the median estimate in a Bloomberg survey of economists and down from this year’s high of 275,000 in January, the Labor Department reported on June 1. Unemployment rose to 8.2 percent from 8.1 percent.
Consumer spending climbed 0.3 percent in April as incomes rose 0.2 percent, according to Commerce Department data.
“We still see a consumer out there who is making some tough choices,” Timothy A. Johnson, senior vice president of finance at Columbus, Ohio-based retailer Big Lots Inc., said in an earnings call this week. “He is concerned about where the economy currently sits.”
While automobile sales eased in May to a 13.7 million annual rate from April’s 14.4 million pace, they were still up 17 percent from a year earlier, according to Ward’s Automotive Group.