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Consumer borrowing registers biggest monthly jump since 2001

May 11, 2012
Americans are stepping up their borrowing, possibly a good sign for the economy as households become less determined to whittle debt and more willing to spend.
Consumer spending on car loans, credit cards, student loans and other types of installment debt grew at a seasonally adjusted 10.2 percent annual rate to $2.54 trillion in March from February, the Federal Reserve reported May 7. Mortgages aren’t included in the tally.
March’s climb was the biggest leap since November 2001, when zero-percent financing on car loans touched off a fury in borrowing after the Sept. 11, 2001, terrorist attacks.
The shift from household-debt reduction to increased borrowing outside of mortgages began in the autumn of 2010 but accelerated late last year.
Economists say it isn’t clear yet whether the shift reflects consumers becoming more confident in a strengthening economy or strained households felling the need to borrow.
Some economists say they view the shift as a positive given other encouraging signs in the economy, including surveys showing rising consumer optimism. Also, banks appear to have loosened lending standards a bit and may be giving consumers more access to credit.
To be sure, consumers still are in a precarious position, as income growth has been slow and unemployment remains high at 8.1 percent. The added debt could hurt consumers, and — in time — the economy as well, if incomes don’t rise more quickly.
The new borrowing largely reflects many Americans buying cars after postponing such purchases for years, as well as a surge in college enrollment amid the weak jobs market.
But the data also showed a spike in credit-card use, which could signal a broader shift in consumer behavior, some economists say.