WASHINGTON – Consumers revved up 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 boost purchases by borrowing.
The result was fueled by autos 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 per cent gain, the fastest pace since November 2001 when consumers were being urged to spend to bolster the economy following the September 11 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 per cent of economic activity in the U.S.
Alan Levenson, chief economist at investment firm T. Rowe Price, said that 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 given recent trends. Credit card use plunged during the recession when consumers tried to lower their debt as millions of people lost their jobs.
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 per cent over the past year.
By contrast, the student and auto loan category has advanced at a more rapid 8.2 per cent 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.
The sharp rise has triggered concerns about the impact 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 top 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.