Consumer credit grows in June, but pace slows

WASHINGTON -- Consumer borrowing rose in June as American households took out auto and student loans.

The $17.3 billion increase in consumer credit followed a $19.6 billion May advance, the Federal Reserve said Thursday. Nonrevolving loans, including borrowing for cars and college tuition, climbed $16.3 billion.

The smaller month-to-month increase in June suggests that consumers remain sheepish about spending, which could limit how fast the economy can grow, some economists said. Rising debt loads are generally a sign of greater confidence in the economy and fuel faster growth.

Stronger employment and gains in home values are giving households the confidence to borrow and make big-ticket purchases such as cars and appliances. Banks also are showing greater willingness to lend, which could drive consumer demand, the biggest part of the economy.

"Consumers are gradually feeling more comfortable borrowing, and lenders are a little more comfortable lending," said Gus Faucher, senior economist at PNC Financial Services Group Inc. in Pittsburgh. "That's going to be good for growth."

Confidence among U.S. consumers fell last week to a two-month low as gyrations in the stock market and stagnant wages overshadowed gains in employment.

The Bloomberg Consumer Comfort Index was at 36.2 in the period that ended Sunday, the lowest level since June 8 and little changed from 36.3 the previous period.

Consumers may be pessimistic about their balance sheets as volatility in the stock market erases wealth gains from earlier in the year, and wage gains barely keep up with inflation. Continued improvement in the labor market will be needed to push incomes higher and burnish confidence, giving households the resources to spend at a faster clip.

"A few more months of improved data and the confidence will assuredly be higher," said Richard Yamarone, a senior economist at Bloomberg LP in New York. "Economic conditions are slow improving -- [gasoline] prices at the pump are lower and job creation is registering some desirable numbers. This is a recipe for a more upbeat consumer."

Fewer people sought U.S. unemployment benefits last week, as joblessness claims remain at relatively low levels that point toward stronger economic growth.

Weekly applications for unemployment aid fell 14,000 to a seasonally adjusted 289,000, the Labor Department said Thursday.

The less volatile four-week average fell 4,000 to 293,500. That's the lowest average since February 2006, almost two years before the recession began at the end of 2007.

"It does suggest that the labor market has shifted to a higher gear," said Xiao Cui, an analyst with the bank Credit Suisse.

The June increase in credit compared with an $18.7 billion median forecast in a Bloomberg survey. Estimates of the 34 economists polled ranged from increases of $10 billion to $22.7 billion. The report doesn't track mortgages, home-equity lines of credit and other debt secured by real estate.

Credit probably continued to expand in July. Strong demand for sport utility vehicles sent Ford Motor Co.'s U.S. sales up 9.5 percent last month from the same month in 2013, pushing deliveries toward the best year since 2006. Motor vehicle sales last month cooled to a 16.4 million annualized rate from an eight-year high of 16.9 million in June, according to data from Ward's Automotive Group.

Federal government lending to consumers, consisting of mainly educational loans, increased $5.4 billion in June from the previous month before adjusting for seasonal variations.

Revolving credit, which includes credit-card balances, rose $941.5 million, the smallest advance since February, after a $1.74 billion gain in May, Thursday's figures showed.

Some banks are showing a greater willingness to extend credit cards and finance car purchases amid growing demand and rising competition, according to a quarterly Fed survey of senior loan officers released Monday.

Over the five years in which the country's economy has rebounded, Americans have generally been hesitant to take on debt. Consumer-spending growth has averaged a tepid 2.2 percent a year during the recovery, compared with a 2.9 percent average during the previous expansion.

The average household debt-to-income ratio has fallen to 77 percent from the 2008 peak of 95 percent, according to analysis by the bank HSBC. That debt ratio remains higher than the 69 percent average in 2001.

Information for this article was contributed by Lorraine Woellert, Victoria Stilwell and Shobhana Chandra of Bloomberg News and by Josh Boak of The Associated Press.

Business on 08/08/2014

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