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Consumers Still Borrowing
Monday, August 12, 2013 5:55 AM

Consumers continued to step up borrowing in June, namely for education and cars, a sign of strengthening demand as consumers recover from the recession. Non-revolving credit outstanding, including auto finance and student loans, rose $16.5 billion, a 10 percent annual rate, to a seasonally adjusted $1.99 trillion. Consumer credit is up as households repair balance sheets after the recession. Revolving credit, including credit cards, fell by $2.7 billion.

Student loans from the federal government rose $3.3 billion, indicating that auto loans were responsible for the bulk of the $12.6 billion overall increase. The Fed doesn’t break out precise data on auto financing.

Up until earlier this year, Americans borrowed for education and not much else, a sign of low consumer confidence and a weak labor market. Unable to find jobs, many people opted to continue studying.

But consumers, feeling more optimistic about the economic recovery, have shown a greater willingness to buy new cars in recent months and borrow money to help them do so.  Analysts are forecasting 2013 auto sales will return to prerecession levels, completing the reversal from a deep economic downturn that led many Americans to defer replacing their vehicles.

The Fed data also showed that revolving credit, primarily credit cards, rose by $300 million in June to $816.7 billion. Growth of revolving credit, which is usually used for smaller discretionary purchases and carries higher interest rates than nonrevolving credit, has been largely flat in the aftermath of the Great Recession.

Total consumer credit, defined as household borrowing excluding mortgages, rose by $13 billion in June to $2.803 trillion. On a seasonally adjusted basis, consumer credit rose by $13.82 billion in June to $2.848 trillion.

(Source: The Wall Street Journal, 8 August 2013)