Fueled by demand for auto loans and higher credit card balances, U.S. consumer borrowing soared in July and posted its biggest jump since November 2001.
Total consumer credit increased $26.01 billion to $3.24 trillion in July, the Federal Reserve reported. The previous record in November 2001 was an increase of approximately $28 billion, according to a Fed spokesman, occurring after the Sept. 11, 2001 attacks as big automakers offered 0% financing and other incentives to draw consumers back to showrooms.
Revolving credit, which mostly measures credit card borrowing, increased 7.4%, or $5.34 billion, to $880.5 billion, after a revised $1.81 billion increase in June. Total outstanding credit card debt was more than $1 trillion when the recession hit in December 2007. The total bottomed out at about $835 billion in April 2011 and has only recovered gradually since then.
Non-revolving credit, which includes auto loans and student loans made by the government, jumped $20.65 billion in July to $2.36 trillion after an upwardly revised $16.99 billion increase in June. Automakers in July reported their best sales figures for that month in eight years.
A stronger job market and rising home values are giving households the confidence to buy big-ticket items. Banks are more willing to lend, which could encourage more consumers to boost their spending, which makes up the biggest part of the economy.
But July's numbers add to a mixed picture for consumers in recent weeks.
While a strong increase in credit usually indicates consumers are more confident about the economy, last month the government reported overall spending fell in July for the first time since January. Consumer confidence, as measured by the University of Michigan, also has barely budged in the past year.
Student loans topped $1.1 trillion by the second quarter of this year, up from $700 billion in 2009. Young Americans saddled with student loan debt may not be able to buy homes or spend on other items the way previous generations did.
Finally, more Americans with spotty credit histories are obtaining auto loans and that ups the risk of defaults in the sector. New auto loans reached their highest level in eight years this spring, the New York Federal Reserve reported.