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

Consumer borrowing in the U.S. rose more than forecast in February, reflecting the biggest gain in automobile, school and other non-revolving loans in a year.

The $16.5 billion advance in credit exceeded all estimates in a Bloomberg survey of economists and followed a revised $13.8 billion gain in the previous month, Federal Reserve figures showed today in Washington. The median forecast in the Bloomberg survey called for a $14 billion increase.

Gains in the labor market, home values and stock portfolios are contributing to healthier balance sheets and bolstering confidence. Income growth, along with improved credit scores, is giving consumers the wherewithal to take out loans for big-ticket purchases such as new cars, helping sustain spending.

“Consumer credit is keeping track with the slow but positive growth we’ve seen in consumer spending throughout the cycle and in household spending in the first quarter,” said Mike Englund, chief economist at Action Economics LLC in Boulder, Colorado. Stronger auto sales in March mean “we’ll probably see a bounce in the consumer-credit numbers as well.”

Estimates of the 34 economists surveyed ranged from increases of $7 billion to $16.2 billion after a previously reported $13.7 billion gain in January. The report doesn’t track debt secured by real estate, such as mortgages and home-equity lines of credit.

Non-revolving credit, such as that for college tuition and the purchase of vehicles and mobile homes, increased by $18.9 billion after January’s $14 billion gain.

Revolving Credit

The gain in non-revolving loans came at the expense of a second straight decline in credit-card use. Revolving debt decreased by $2.4 billion in February after dropping $241 million the month before, today’s figures showed.

Lending to consumers by the federal government, mainly for student loans, rose by $6.2 billion before adjusting for seasonal variations after jumping $28 billion in January, today’s report showed.

Banks have been loosening the reins of credit ranging from commercial real estate and commercial and industrial loan lending to credit cards and auto loans, according to the Fed’s quarterly survey of senior loan officers published in February. About 20 percent to 40 percent of banks said they expect delinquencies on most types of business loans to decline this year. About 40 percent expect mortgage delinquencies and write-offs to fall, and 15 percent to 20 percent expect credit-card loans and other consumer loans to improve.

“Domestic banks, on balance, reported having eased their lending standards on many types of business and consumer loans and having experienced increases in loan demand, on average, over the past three months,” the Fed said in the Feb 3 report.

Consumer Spending

Faster growth in the world’s largest economy will be needed to boost consumer spending after the harshest winter in four years weighed on demand. Household purchases, which account for almost 70 percent of the economy, climbed 0.3 percent after a 0.2 percent gain in January that was smaller than previously estimated, Commerce Department figures showed March 28. Incomes also rose 0.3 percent.

Consumers picked up the pace in March. Warmer weather last month combined with generous incentives to propel sales of cars and light trucks to a 16.33 million annualized rate, the strongest since May 2007, according to Ward’s Automotive Group.

Growth in the U.S. is projected to reach 2.7 percent this year, according to a Bloomberg survey of economists, supporting the Fed’s outlook that the economy has improved enough to continue unwinding its bond-buying program.

The central bank announced last month a $10 billion reduction in monthly bond buying to $55 billion and repeated that it will taper purchases “in further measured steps at future meetings.” The committee announced $10 billion reductions in purchases at the previous two meetings.

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