U.S. Consumer Credit Climbed by $19B in Dec.

By Meera Louis - Feb 8, 2012 3:26 AM GMT+0700

Consumer borrowing in the U.S. rose more than forecast in December, driven by demand for auto and student loans.

Credit increased by $19.3 billion to $2.5 trillion, Federal Reserve figures showed today in Washington. The gain topped the $7 billion median forecast of economists surveyed by Bloomberg News and followed a $20.4 billion advance the prior month.

Consumers “are willing to take on this debt because there is some increasing degree of confidence in the economy,” said Ken Mayland, president of ClearView Economics LLC in Pepper Pike, Ohio, who projected credit would climb by $15 billion, the highest in the Bloomberg survey. “Consumers over the past several years have done a pretty good job of repairing their balance sheets.”

An improving job market may be giving households the courage to take on more debt in order to sustain spending, which accounts for about 70 percent of the economy. At the same time, increasing dependence on credit may be an indication the gains in employment have yet to push wages high enough to single- handedly give consumers the means to keep shopping.

The median forecast was based on a survey of 37 economists. Estimates ranged from a decrease of $8 billion to an increase of $15 billion.

The back-to-back increase at the end of 2011 was the biggest since October-November 2001.

Auto, School Lending

Non-revolving debt, including educational and auto loans increased by $16.6 billion in December, the biggest gain since November 2001, today’s report showed. The Fed’s report doesn’t track debt secured by real estate, such as home equity lines of credit.

Industrywide sales of cars and light trucks totaled 12.8 million for all of 2011, a 10 percent increase from 2010, according to researcher Autodata Corp.

Demand for credit may keep growing as demand keeps improving. Auto sales climbed to a 14.1 million annual rate last month, according to industry data. Excluding a surge in August 2009 that reflected the government’s “cash-for-clunkers” program, it was the strongest month since May 2008.

General Motors Co. (GM) and Ford Motor Co. (F), the largest automakers by U.S. sales, forecast industrywide deliveries will rise to as much as 14 million in 2012, including medium- and heavy-duty trucks.

Revolving debt, which includes credit cards, climbed by $2.76 billion, according to the Fed’s statistics.

Credit Cards

MasterCard Inc., the world’s second-biggest payments network, last week said fourth-quarter profit climbed 24 percent as spending with credit and debit cards increased. Debit-card purchases increased 18 percent from the same time a year earlier, while those on credit cards rose 6.6 percent. Shares of the Purchase, New York-based company surged 66 percent in 2011, the fourth-best performer in the Standard & Poor’s 500 Index.

Employers added 243,000 workers to payrolls in January, exceeding all forecasts of economist surveyed by Bloomberg, and the jobless rate unexpectedly dropped to a three-year low of 8.3 percent, figures from the Labor Department showed last week.

A report from the Labor Department today showed there were almost four unemployed Americans vying for each job vacancy in December, more than twice the number before the recession began in December 2007. That may explain why wages have yet to pick up, prompting households to borrow.

Hourly earnings were up 1.9 percent in January from the same month in 2011 on average, the smallest year-over-year gain since April, the Labor Department reported last week. For production workers, the 1.5 percent increase was the smallest in records going back to 1965.

To contact the reporter on this story: Meera Louis in Washington at mlouis1@bloomberg.net

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