Lending to buy exceeds forecast

Consumer total up in December

Consumer borrowing in the U.S. increased more than forecast in December as Americans made Christmas purchases with credit cards and took out loans for cars and tuition.

The $18.8 billion gain exceeded the highest estimate in a Bloomberg survey and followed a revised $12.4 billion advance the previous month, the Federal Reserve reported. The median forecast of 30 economists called for a $12 billion increase. For all of 2013, consumer credit increased 6.2 percent after rising 6.1 percent a year earlier.

Gains in household wealth tied to higher stock and property values are giving Americans the wherewithal to carry bigger credit-card balances as the job market struggles to pick up. Stronger wage growth would help provide more fuel for the consumer purchases that account for almost 70 percent of the economy, analysts say.

“To the extent that the labor market holds up and wealth holds up, then I think you’d expect to see credit continue to rise along with consumer spending,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, N.Y. “Consumer credit tends to be positively correlated with growth. It’s generally a good sign when credit is rising.”

Estimates of the change in consumer credit among the 31 economists surveyed by Bloomberg ranged from increases of $5 billion to $17 billion. The report doesn’t measure debt secured by real estate, such as mortgages and home-equity lines of credit.

Revolving credit, which includes credit-card purchases, rose by $5 billion in December, the most in seven months, after a $465 million gain, figures showed.

Nonrevolving debt, such as that for college loans and the purchase of vehicles and mobile homes, climbed by $13.8 billion after November’s $11.9 billion increase. Auto lending increased $7 billion in the fourth quarter from the prior three months.

Americans have been borrowing to replace older cars. U.S. auto sales increased to 15.6 million in 2013, the industry’s best year since 2007, according to researcher Autodata Corp. The improvement came even as December sales slumped after cold weather kept some buyers from dealerships.

Lending to consumers by the federal government, mainly for student loans, rose by $5.6 billion before adjusting for seasonal variations after rising $6.1 billion in November, Friday’s report showed. In the fourth quarter, student-loan debt rose $12.6 billion. Household purchases grew 3.3 percent in the fourth quarter, the biggest gain since the end of 2010, a Commerce Department report last week showed. The world’s largest economy expanded at a 3.2 percent annual rate in the final three months of 2013.

Banks can benefit from the consumers’ increased use of their credit cards even after an expected drop in balances after Christmas, said Brian Moynihan, president and chief executive officer of Charlotte, N.C.-based Bank of America Corp.

“What we did see in the latter part of last year is more uses on the credit slide, which from a general economy perspective, is actually good news in that people were using the credits versus debit,” Moynihan said on a Jan. 15 earnings call.

Citing gains in the labor market, the Fed last month said it will reduce monthly bond buying to $65 billion from $75 billion.

Business, Pages 27 on 02/08/2014

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