Credit lending takes off in April

Rise in card debt seen as a positive

WASHINGTON -- Consumers increased their borrowing in April, with growth in credit-card debt accelerating at the fastest pace in more than a dozen years.

Overall credit expanded by $26.8 billion during the month, up from an increase of $19.5 billion in March, the Federal Reserve said Friday. The sizable climb is an encouraging sign for the economy, suggesting that consumers are confident enough to increase purchases by borrowing.

"The ability of consumers to carry debt is vastly improved," said Millan Mulraine, deputy head of U.S. research and strategy at TD Securities USA in New York. "This is what we need to see for us to believe that the economy will make that transition to a self-sustaining growth trajectory."

The median forecast of 29 economists surveyed by Bloomberg called for a $15 billion advance. Estimates ranged from increases of $12 billion to $21 billion.

The jump in credit was fueled by automobiles and student loans, which rose by $18 billion, and credit-card debt, which was up $8.8 billion. The upswing in credit-card debt represented a 12.3 percent gain, the fastest pace since November 2001 when consumers were being urged to spend to bolster the economy after the Sept. 11, 2001, terrorist attacks.

The April increase continued a string of robust monthly gains and pushed total borrowing to a record high of $3.18 trillion.

Increased household borrowing can drive stronger consumer spending, which accounts for 70 percent of economic activity in the U.S.

Alan Levenson, chief economist at investment firm T. Rowe Price, said the momentum is likely to continue in coming months, helped by rising employment and steady income growth that will make people more willing to take on debt.

The rise in credit-card balances in April was surprising because of recent trends. Credit-card use plunged during the recession when consumers tried to lower their debt as millions of people lost their jobs.

Many banks are showing a greater willingness to extend credit cards and finance car purchases because of growing demand and rising competition, according to a Fed survey of bank senior loan officers at 74 domestic banks and 23 U.S. units of foreign banks from April 1-15.

Credit cards started to rebound in 2011, but those increases have lagged far behind the category that covers auto and student loans, with consumers still apprehensive about taking on high-interest debt. Even with the big April jump, credit-card borrowing is up only 2.2 percent over the past year.

By contrast, the student and auto loan category has advanced at a more rapid 8.2 percent over the past year, nearly four times the pace of gains in credit-card borrowing.

A separate quarterly report on consumer credit from the Federal Reserve Bank of New York shows that student loans have been the biggest driver of consumer borrowing since the recession ended in June 2009.

Consumer loans made by the federal government, mostly for school tuition, increased by $4.8 billion before seasonal adjustment after rising $4 billion in March, Friday's report showed.

The rise has triggered concerns about the effect on young people trying to start careers and families while saddled with debt.

Deputy Treasury Secretary Sarah Bloom Raskin, who has made student debt one of her priorities, met with economists this week to discuss the issue. Raskin said afterward that her goal is to "ensure that student loan debt levels do not threaten" economic activity in other areas.

The Fed's monthly credit-card report does not include mortgage debt or any other loans that are secured by real estate.

Information for this article was contributed by Martin Crutsinger of The Assocaited Press and by Michelle Jamrisko and Ainhoa Goyeneche of Bloomberg News.

Business on 06/07/2014

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