March 7 (Bloomberg) -- Consumer credit in the U.S. rose in January by the most in five months as Americans took out loans for auto purchases and tuitions.
The $16.2 billion increase followed a revised $15.1 billion advance in December that was larger than initially reported, the Federal Reserve said today in Washington. The median forecast of 27 economists surveyed by Bloomberg called for a $14.7 billion gain in January. Non-revolving debt, which includes financing for auto purchases and college, climbed $16 billion.
Employment gains, rising stock prices and stable home values may be making households more willing to borrow, helping sustain the consumer spending that accounts for about 70 percent of the economy. Cheaper financing is underpinning purchases of big-ticket items like motor vehicles.
“There’s been some repair to household balance sheets in the last few years,” Terry Sheehan, an economist at Stone & McCarthy Research Associates in Skillman, New Jersey, said before the report. The firm is the second-most accurate consumer credit forecaster over the past two years. “Consumers certainly have a little more leeway in their borrowing, and with greater employment prospects we have certainly seen a greater ability to borrow.”
Estimates in the Bloomberg survey for consumer credit ranged from gains of $10 billion to $20 billion after a previously reported $14.6 billion advance in December.
The Dow Jones Industrial Average climbed to another record after a report today showed jobless claims dropped to a six-week low. The Dow rose 0.3 percent to 14,331.52 at 3:08 p.m. in New York.
First-time jobless claims unexpectedly fell by 7,000 to 340,000 in the week ended March 2, according to data from the Labor Department in Washington. The median forecast of 50 economists surveyed by Bloomberg called for an increase to 355,000. The four-week average dropped to a five-year low.
The Fed’s report on borrowing doesn’t track debt secured by real estate, such as home mortgages and home equity lines of credit.
Revolving debt, which includes credit cards, rose by $106 million after a $3.2 billion decrease in December.
The January increase in non-revolving credit followed an $18.3 billion gain in the prior month that was the biggest since November 2001, when automakers lured buyers back to showrooms with zero-percent financing after the Sept. 11 terrorist attacks.
Lending by the federal government, which is mainly for educational loans, rose $25.9 billion in January before seasonal adjustment, today’s report showed.
The gain in non-revolving borrowing also reflects the recent strength in motor vehicle sales. Cars and light trucks sold at a 15.2 million annual rate in January after 15.3 million a month earlier, according to Ward’s Automotive Group. November through February marked the strongest four months for the auto industry in five years.
Ford Motor Co. had its best February sales in six years, with deliveries up 9.3 percent, while General Motors Co. posted a 7.2 percent increase.
“The recovery in home prices is building customer confidence, credit is available and affordable, and consumers appear to be taking higher payroll taxes in stride, at least when it comes to replacing older vehicles,” said Kurt McNeil, vice president for U.S. sales and service at GM, during a March 1 sales and revenue call.
The average age of cars and light trucks has reached a record high, according to data compiled by Polk, an auto industry information provider, which may be prompting consumers to replace their vehicles.
Sustained job growth may be boosting Americans’ willingness to borrow and spend. The economy created 157,000 jobs in January and may have added another 165,000 jobs in February, according to the median estimate in a Bloomberg survey. The Labor Department will release the figures tomorrow.
Another report today showed household wealth in the U.S. climbed in the fourth quarter, propelled by a gain in home prices that is helping repair family finances.
Net worth for households and non-profit groups increased by $1.17 trillion from October through December, or 1.8 percent from the previous three months, to $66.1 trillion, the Federal Reserve said today from Washington in its flow of funds report.
Household wealth is approaching its pre-recession level, helping to limit the impact from higher fuel costs and payroll taxes. The average price of a gallon of gasoline was $3.72 yesterday compared with a recent low of $3.22 on Dec. 19, according to AAA, the largest U.S. motoring group.
At the start of the year, Congress and President Barack Obama allowed the payroll tax that funds Social Security to revert to its 2010 level of 6.2 percent from 4.2 percent.
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