WASHINGTON – Consumer borrowing in the U.S. rose by the most in more than three years in July, led by a gain in non-revolving credit that includes student loans.
Credit increased $12 billion after a revised $11.3 billion rise in June, the Federal Reserve said Thursday in Washington. Economists projected a $6 billion gain, according to the median forecast in a Bloomberg News survey. The rise in non-revolving loans was the most since November 2001.
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Revolving credit showed the biggest decrease in six months, indicating Americans may be cutting back on non-essential items as limited job and wage growth depresses consumer confidence. Employment and income gains may be required to help spark the household spending and the recovery.
“The softness in revolving credit is indicative of a cautious consumer,” Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. As for the overall gain, “school loans are part of it, as is auto finance.”
The July gain was the biggest since April 2008, the Fed’s figures showed. Estimates in the Bloomberg survey of 32 economists ranged from gains of $1 billion to $17 billion after a previously reported $15.5 billion June increase. The Fed’s report doesn’t track debt secured by real estate, such as residential mortgages and home equity lines of credit.
Non-revolving debt, including educational loans and loans for autos and mobile homes, rose by $15.4 billion in July, and revolving debt, which includes credit cards, fell by $3.4 billion. The report doesn’t track debt secured by real estate, such as home equity lines of credit and home mortgages.
Economic Outlook
“The consumer is caught between a rock and a hard place and this does not bode well for the economic outlook,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd.
The total increase in credit reflected a $15.6 billion non- seasonally adjusted rise, to $385.7 billion, in the federal government category of borrowing, which includes school loans. The unadjusted figures also showed smaller increases in non- revolving borrowing at commercial banks, finance companies and credit unions, which may reflect a pickup in car sales during the month.
Americans picked up the pace of car buying in July. Vehicle sales climbed to a 12.2 million annual rate during the month from an 11.41 million pace, according to industry data.
The Fed said Tuesday in its Beige Book economic survey that the economy expanded at a slower pace in some regions as shoppers limited their spending and factories curbed production.
Beige Book
“Economic activity continued to expand at a modest pace, though some districts noted mixed or weakening activity,” the Fed said.
Fed Chairman Ben S. Bernanke said last month that the economy was weaker than anticipated and that policy makers will review ways to bolster growth and reduce unemployment at their Sept. 20-21 meeting.
Bernanke said “only a portion” of the economy’s weakness stemmed from temporary factors such as a surge in energy prices earlier this year. Persistent headwinds are also holding back the recovery, including high unemployment, tight credit and a flagging housing market, he said.
Gregg Steinhafel, CEO of Target Corp., said the economic recovery was “uneven and uncertain” when the retailer and credit card issuer reported its August same-store sales exceeded forecasts on Sept. 1. In the company’s second quarter, expenses for bad debt totaled $15 million, down from $138 million a year earlier, Target said in a separate announcement on Aug. 18.
Consumer spending, which accounts for about 70 percent of the economy, expanded at a 0.4 percent annual rate in the second quarter, the smallest increase in more than a year, according to Commerce Department data issued Aug. 26.
