More Debt For American Consumer, A Rare Positive Sign For Economy

Consumer credit experienced a surprise jump in May, even as other indicators illustrated a economy?suppressed?by worries. (Image credit: AFP via @daylife)

U.S. consumer credit expanded far more than expected in May, a time when the broader economy seemed to cool.

Consumer credit grew by the most in five months, rising by a seasonally adjusted $17.1 billion to $2.6 trillion, Federal Reserve data shows this afternoon. Credit increased at an annualized 8.3% rate, the best pace since last December?s 9.3%. Economists had expected credit to expand by only $7.8 billion.

Growth in borrowing suggests Americans sought financing for cars and other large items, as well as loans for education, in a period where global fears and grim readings on the U.S. economy weighed their minds. Consider that the pickup came in the same month where economists speculated about the impending?insolvency?of the eurozone, and U.S. job growth slowed to 77,000.

Some observers, though, point to May?s expansion as evidence that consumers turned to credit because wage growth isn?t keeping up with expenses.?Revolving credit, which includes credit-card spending, rose by $8 million, the largest one-month surge since November 2007. ?Continuing spikes in revolving credit would illustrate the need to use debt in place of income, says IHS economist Paul Edelstein. (And chalk up good months for credit-card companies like Visa and Mastercard.)

Meanwhile, in May, nonrevolving debt?loans for education loans and big-ticket purchases?climbed by $9.1 billion. The large majority of that increase came from federal government loans, mainly used for schooling, which rose by $6.2 billion.

Consumers? willingness?to seek long-term debt can be a boost to car companies such as Ford and General Motors and other businesses selling mostly large items. In all, consumer spending is the key driver of economic growth, making up some 70% of all activity in the U.S. It?s been restrained in past months by the weak job growth and worries about Europe.

Today?s report does not show any data on mortgages or other real estate loans.

Reach Abram Brown at abrown@forbes.com. Or follow him @abebrown716.

Source: http://www.forbes.com/sites/abrambrown/2012/07/09/consumer-credit-jump-a-rare-positive-sign-for-economy/

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