Bloomberg News

Consumer Credit in U.S. Rises $13.6 Billion on Car Purchases

October 07, 2013

U.S. Auto Sales

The boost to household wealth from improved home values and stock-market gains has put consumers in a position to take advantage of cheaper borrowing costs for major purchases such as automobiles. Photographer: Luke Sharrett/Bloomberg

Consumer borrowing rose more than projected in August as Americans took out more loans for motor vehicle purchases and education.

The $13.6 billion increase in credit followed a $10.4 billion gain in July, the Federal Reserve said today in Washington. The median forecast in a Bloomberg survey of economists called for a $12 billion advance. Non-revolving debt, which includes financing for college tuition and motor vehicles, climbed $14.5 billion.

The boost to household wealth from improved home values and stock-market gains has put consumers in a position to take advantage of cheaper borrowing costs for major purchases such as automobiles. Credit-card lending declined for a third month, showing Americans are being deliberate in taking on more debt to finance other purchases.

“The auto industry has done quite well, and student loans from the federal government have been on the rise,” said Gregory Daco, senior U.S. economist at Oxford Economics USA in New York, who projected a $13 billion increase in overall credit. “Consumers are willing to spend, but they’re more cautious about ensuring they have sufficient income.”

Estimates of the 34 economists surveyed ranged from increases of $9 billion to $18 billion. The report doesn’t track debt secured by real estate, such as mortgages and home-equity lines of credit.

Stocks fell as lawmakers remained deadlocked over extending the nation’s debt limit. The Standard & Poor’s 500 Index declined 0.6 percent to 1,681.1 at 3:34 p.m. in New York.

Revolving Debt

Revolving debt, which includes credit-card spending, decreased by $883 million in August after falling $1.8 billion the month before, today’s figures showed. The string of three straight declines in revolving loans is the longest since consecutive decreases to November 2010.

Non-revolving credit increased in August after climbing $12.2 billion a month earlier.

The pickup in non-revolving lending was a reflection of stronger auto sales and an increase in school loans. Cars and light trucks sold in August at an annualized pace of 16 million, the strongest since November 2007, according to data from Ward’s Automotive Group.

“We believe that there are a lot of things going on in terms of positive momentum in the economy,” Jenny Lin, senior U.S. economist at the Dearborn, Michigan-based Ford Motor Co. (F:US), said on an Oct. 1 sales call. “Interest rates remain very low and favorable for auto purchases.”

Student Loans

Consumer loans made by the federal government, mostly for school tuitions, jumped by $21.9 billion before seasonal adjustment after increasing $4.8 billion in July, today’s report showed.

The interest rate on undergraduate Stafford loans dropped to 3.86 percent in August, retroactive to July 1, the day the rate doubled to 6.8 percent. The law links financing to 10-year Treasury yields, which had the immediate effect of reducing the borrowing cost for Stafford loans.

“There was uncertainty in July over the interest rate that was going to be charged,” Russell Price, senior economist at Ameriprise Financial Inc. in Detroit, said before the report. “I think a lot of the student loan debt was delayed until August, so there’s been catch-up.”

Higher home and stock prices have allowed Americans to repair balance sheets. Disposable income, or money left over after taxes, adjusted for changes in prices has been picking up since the start of the year. It increased 1.6 percent in August from the same month last year, the biggest gain since the end of 2012, Commerce Department figures showed.

The advance is helping sustain household purchases, which account for about 70 percent of the economy. Inflation-adjusted personal consumption increased 2 percent in August from a year earlier, according to the Commerce Department. Faster employment and wage gains would help spur bigger gains.

To contact the reporter on this story: Benjamin Schenkel in Washington at bschenkel@bloomberg.net

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


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